Imperial Oil Is Already Trading At A Premium, Morgan Stanley Says In New Underweight Rating

On Tuesday, Morgan Stanley issued a company note on Imperial Oil Ltd.

after recent analysis saying that the firm is trading at a premium with expected returns that may outperform their peers. Analysts at Morgan Stanley initiated coverage on the company with an Underweight rating and a $36 price target. Benny Wong and Evan Calio, analysts at Morgan Stanley, wrote, "IMO's superior returns and competitive advantages are reflected in its premium valuation. We expect dividend growth after years of high capex but at a level below what's priced in." Morgan Stanley gave 2 key reasons why they rate Imperial Oil as Underweight: 1. Conservative dividend growth While analysts noted that Imperial OIl may be entering a period of low capital expenditures Morgan Stanley believes that there is a near to mid-term cash flow uncertainty. Thus, analysts highlighted that a lower dividend growth rate than the 6 percent that is priced into the stock may be expected. 2. Valuation Currently, Imperial Oil is trading at an over 5x premium above their peers. Historically the company has traded at 1.5x due to competitive advantages and high levels of technological expertise. Thus, analysts believe that the near term may not be the best time to invest in the company due to these high valuations. Imperial Oil last traded at $31.35, down 0.51 percent