Exxon Mobil Shares Indicated Lower Following BofA Downgrade

Exxon Mobil Corporation XOM shares have gained 14 percent year-to-date. BofA Merrill Lynch’s Doug Leggate downgraded the rating for the company from Buy to Neutral, with a price objective of $96. Shares dipped a little over 1 percent in the after hours to $88.20.

Exxon Mobil’s stock valuation already seems to reflect long-term oil at around $73, analyst Doug Leggate said. He added that the shares had outperformed sector peers, “reflecting perhaps a flight to XOM’s defensive characteristics on the way down and relative scale that positions the stock as the ‘go to’ name for portfolio managers looking to reduce relative energy underweights as oil prices recover.”

While this momentum could continue, there is merely 8 percent upside potential from the current levels.

Underlying Investment Case Intact

Exxon Mobil’s portfolio is shifting towards higher oil leverage and a higher overall proportion of long-life assets. This is likely to be driving unit margin expansion, although this has been overshadowed by the decline in oil prices.

“As oil prices recover we believe the full extent of XOM’s portfolio ‘rate of change’ is likely to surprise on the upside, providing acceleration of free cash flow, and a step change in distributions back towards repurchasing shares,” Leggate commented.