Market Overview

Raymond James: Higher Oil Prices Are Bad News For Exxon Investors

Raymond James: Higher Oil Prices Are Bad News For Exxon Investors
Related XOM
How To Approach Q4 Earnings: The Corporate Perspective
Jim Cramer Gives His Opinion On Barrick Gold, Exxon, Nike And More
Permian crude price pushes to highest since March on lower supply (Seeking Alpha)

This year has been another disappointing one for Exxon Mobil Corporation (NYSE: XOM) investors, and one Wall Street analyst said a major jump in oil prices could mean more of the same for Exxon in 2019.

The Analyst

Raymond James analyst Pavel Molchanov reiterated an Underperform rating on Exxon. 

The Thesis

Oil prices are in the process of reaching new cyclical highs in late 2019 and 2020, Molchanov said in a Tuesday note. (See his track record here.) 

Raymond James is now forecasting WTI prices of $75/bbl by the fourth quarter of 2019, and Molchanov said Exxon is not well-positioned for major swings in oil prices.

“A look-back at nearly two decades of history provides ample evidence that XOM shares are set to lag far behind the energy sector benchmark under the oil price scenario that we envision over the next 12 months."

In the nine instances in which oil prices have rallied at least 45 percent in a one-year period since 2000, Exxon has underperformed its peers in seven of those scenarios. 

Exxon’s relative underperformance during rallies in oil prices may seem counterintuitive, since higher oil prices are theoretically good for margins. Yet Molchanov said Exxon’s size and stability make investors view it as a defensive energy play. Therefore, it tends to be a flight-to-safety buy during periods of oil price weakness and a source of funds for investors during times of oil price gains.

When oil prices are rising, traders tend to dump Exxon stock and buy other oil stocks with a higher beta, leading Exxon shares to underperform, the analyst said. 

The most recent period of major oil price gains was no exception: WTI prices rallied 50 percent from August 2016 to January 2018, but Exxon stock was down 2 percent during the stretch.

Price Action

Exxon was down 0.37 percent at $76.26 at the time of publication Tuesday and remains down 7.5 percent overall in 2018.

Related Links:

The Election's Impact On Energy, Fracking

Oil Rebounds As OPEC Agrees On Bigger-Than-Expected Cut

Latest Ratings for XOM

Dec 2018Societe GeneraleMaintainsBuyBuy
Nov 2018Wolfe ResearchUpgradesPeer PerformOutperform
Nov 2018Raymond JamesDowngradesMarket PerformUnderperform

View More Analyst Ratings for XOM
View the Latest Analyst Ratings

Posted-In: Analyst Color Short Ideas Commodities Reiteration Top Stories Markets Analyst Ratings Trading Ideas Best of Benzinga


Related Articles (USO + XOM)

View Comments and Join the Discussion!

Latest Ratings

CNPRBC CapitalUpgrades34.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

All The Best Amazon Headphones Deals Happening Right Now, Up To 60% Off: 1MORE, Samsung Gear, VI Sense, MEE Audio, Logitech Deals

Winter Storm Diego Still Trouble In The South, Snowstorms Out West This Week