Exxon Not The Best Way To Survive The Oil Apocalypse

Deutsche Bank analyst Ryan Todd said there are better ways to play the ongoing oil apocalypse other than Exxon Mobil Corporation XOM.

Spending remains relatively constrained at Exxon. While costs normalize/commodity recovers, short-cycle spend will provide near/medium-term flexibility, but otherwise, the relatively unchanged business model is a reminder that Exxon remains the standard of "through the cycle" management.

Exxon anticipates to be cash flow neutral (inclusive of asset sales) from 2017+ at $40/bbl-$45/bbl despite an increase in capital spend in the outer years (about $2 billion- $3 billion of spend in 2018-2020 versus 2017) on increased oil-weighted production mix, cost efficiencies and inflection in downstream cash flow.

"We estimate $6.5Bn in asset sales needed over the next two years to maintain cash flow neutrality on the revised budget (roughly in-line with 2014-2015 total spend) and a break-even of $45+/bbl by 2017," Todd said in a note.

Related Link: No M&A 'In Sight' For Exxon, Barclays Says

One of the outstanding questions facing Exxon (and other super majors) remains the sustainability and attractiveness of the business model in a low to moderate crude price environment (i.e. Can the combination of cost reductions and capital reallocation support sustainable reserve replacement, dividend/FCF growth and improving returns?).

"If the budget outlook is any indication, we're not there yet," Todd said.

"With a slow recovery in FCF, limited relative leverage to a recovery at this point in the cycle, and trading at a 60% premium to peers, we see greater upside elsewhere," Todd added.

Todd likes Pioneer Natural Resources PXD, Valero Energy Corporation VLO, Marathon Petroleum Corp MPC, HollyFrontier Corp HFC and others better versus Exxon, according to a data from Tipranks.

Todd has a Hold rating and $85 price target on Exxon, which has gained 5 percent this year. In the same period, shares of Pioneer were up 9 percent, Valero advanced 5 percent, and Marathon increased 4 percent, while HollyFrontier was down 1 percent.