Market Overview

Macquarie: Now's The Time To Sell Exxon And Chevron, Buy Total And Royal Dutch Shell

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  • Shares of most oil supermajors have declined year-to-date.
  • Macquarie’s Iain Reid initiated coverage of four supermajors in the Integrated Oil segment.
  • Investors should take a defensive approach to the global oil supermajor sector, given the depressed environment, Reid stated.

Analyst Iain Reid recommended investors to “position themselves defensively” in the global oil supermajor sector. Oil price recovery is likely to be slow and there is the risk of the 1985-1990 slump repeating itself.

This is unlikely to have a positive impact on most of the supermajors, particularly in the upstream divisions of the companies, where earnings have been eroded years of significant cost inflation. “We are thus cautious overall and believe the current very positive strength in the companies’ downstream earnings will fade towards the end of the year,” Reid added.

Macquarie’s key picks include Total SA (ADR) (NYSE: TOT) and Royal Dutch Shell plc (ADR) (NYSE: RDS.A), as these companies are expected to prosper even in the current depressed environment. Reid believes that US companies Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) should be avoided for now, mainly on account of their valuations.

Reid initiated coverage of the following supermajors:

  1. Total: Initiated with an Outperform rating and a price target of €48. The analyst believes that the free cash flows could accelerate, as the company is a first mover in cost reduction and production growth.
  2. Royal Dutch Shell: Initiated with an Outperform rating and a price target of €19. Reid believes that the BG deal makes sense both strategically and financially. There should be a price correction, given the underperformance of the company’s shares.
  3. Exxon Mobil: Initiated with an Underperform rating and a price target of $60. Despite it being a low growth company, its stock has a premium valuation, which is unjustified.
  4. Chevron: Initiated with an Underperform rating and a price target of $65. The company’s performance is likely to be restricted by slow oil price recovery.

Latest Ratings for XOM

Jan 2017UBSDowngradesNeutralSell
Jan 2017Wells FargoDowngradesOutperformMarket Perform
Dec 2016BMO CapitalInitiates Coverage OnMarket Perform

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Posted-In: Iain Reid MacquarieAnalyst Color Initiation Analyst Ratings


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