Crude oil prices closed Monday’s session at their highest levels since 2014, and parade of analysts are coming out bullish on Exxon Mobil Corporation (NYSE: XOM) ahead of its first-quarter earnings report on Friday. Exxon has been a major market laggard for years now, but analysts believe a stable oil market, a sizable capital return program and a strong portfolio of holdings could have Exxon stock on the brink of a bullish breakout.
Bank of America analyst Doug Leggate says Exxon will beat consensus earnings per share forecasts on Friday, reporting $1.05 in EPS compared to $1.03 consensus estimates.
[See: 7 of the Best Energy Stocks to Buy for 2018.]
“We believe the dislocation of XOM’s share price following a [fourth-quarter] earnings miss that coincided with a broader market correction leaves XOM amongst the most undervalued of the large-cap U.S. oils,” Leggate says.
He also says Exxon should generate enough free cash flow this year to support its current 3.9 percent dividend yield and restart its share buybacks in the second half of the year.
“We expect XOM to generate free cash flow after dividends, including a modest contribution from disposals, that are expected to accelerate through the course of the year,” Leggate says.
Raymond James analyst Pavel Molchanov also says Exxon could return to share buybacks in the near future. With Exxon stock down 5.5 percent year-to-date, Molchanov says further downside appears limited.
“At this point, and in the context of oil prices that are within striking distance of what we envision to be cyclical highs over the next six to 12 months, we think the Exxon short has essentially run its course,” Molchanov says.
Molchanov also says Exxon’s slumping share price has provided Exxon investors with the company’s highest dividend yield in decades.
Outside of Exxon’s generous dividend and attractive valuation, Morningstar analyst Allen Good says investors shouldn’t overlook the company’s world-class assets.
[See: Oil ETFs: 8 Ways to Invest in Black Gold.]
“We have long argued, and the historical returns support it, that Exxon is the highest quality integrated [oil company] overall and that its downstream and chemicals segments are key differentiators,” Good says.
Bank of America has a “buy” rating and $100 price target for Exxon. Raymond James has a “market perform” rating for XOM stock. Morningstar has an “undervalued” rating and $85 fair value estimate for Exxon.
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XOM Stock: What to Expect From Exxon Mobil Corporation Earnings originally appeared on usnews.com
