The day before the Dow Jones Industrial Average dropped Exxon Mobil in August, the stock was trading under $40 and investors were betting that it would have to cut its dividend. One analyst even suggested that it merge with Chevron and change its name. But Exxon hasn’t faded into obscurity. Instead, the stock has started gaining new fans.
In just the past week, three analysts have upgraded Exxon to Buy ratings. One upgrade came from J.P. Morgan analyst Phil Gresh, who predicted the stock can rise to $56 from around $48.
Gresh admits he isn’t early to this call. The stock is up nearly 50% from its fall bottom, and recently rose for nine trading days in a row—a streak that ended on Friday on a report that the Securities and Exchange Commission was looking into Exxon’s valuation of some of its holdings. But Exxon still trails other oil producers.
“As measured by percentage of sell-side buy ratings, Exxon still has the worst sentiment of the global majors and remains near the low-end of its historical range,” Gresh writes. He doubts the dividend is in danger, even after Exxon loaded up on debt in 2020. Exxon’s decision to cut operating costs and reduce its drilling budget—along with oil prices rising—may mean it can cover its dividend with free cash flow, something it hasn’t done in two years.
Exxon’s gains depend on strong oil prices, he adds. If oil plunges, its debt, some $65 billion, means that it can’t simply ride the oil cycle higher as it might have a decade ago. But, he says, “We think Exxon understands this issue and will look to use excess cash to reduce debt if oil prices sustainably move above the low-$50s break-even.”
Next Week
Monday 1/18
Stock and fixed-income markets are closed in observance of Martin Luther King Jr. Day.
Tuesday 1/19
Bank of America, Charles Schwab, Goldman Sachs Group, Halliburton, J.B. Hunt Transport Services, Netflix, State Street, and Zions Bancorp report earnings.
Williams Cos. hosts a virtual environmental, social, and corporate governance event. The firm’s CEO, Alan Armstrong, along with senior leadership will discuss the company’s forward-looking strategy for sustainable operations.
Wednesday 1/20
Joe Biden will be sworn in as the 46th president of the U.S. at noon in Washington, D.C.
Bank of New York Mellon, Citizens Financial Group, Discover Financial Services, Fastenal, Morgan Stanley, Procter & Gamble, U.S. Bancorp, United Airlines Holdings, and UnitedHealth Group report quarterly results.
The National Association of Home Builders releases its NAHB/ Wells Fargo Housing Market Index for January. Consensus estimate is for an 86 reading, matching the December data.
Thursday 1/21
The European Central Bank announces its monetary-policy decision. The ECB is unlikely to change the deposit facility rate, currently at a record-low negative 0.5%.
Baker Hughes, CSX, Fifth Third Bancorp, Intel, IBM, Northern Trust, PPG Industries, Travelers, Truist Financial, and Union Pacific announce earnings.
The Census Bureau reports new residential construction data for December. Economists forecast a seasonally adjusted annual rate of 1.56 million housing starts, slightly more than the November figure. Building permits are seen coming in at 1.6 million, just below the previous month’s data.
The Bank of Japan announces its monetary-policy decision. The central bank is expected to keep its key short-term rate unchanged at negative 0.1%. It has been five years since Japan first instituted negative interest rates to head off a deflationary spiral.
Friday 1/22
Huntington Bancshares, Kansas City Southern, Regions Financial, and Schlumberger hold conference calls to discuss quarterly results.
IHS Markit releases both the Manufacturing and Services Purchasing Managers’ indexes for January. Consensus estimate for the Manufacturing PMI is 56.5, while the Services PMI is expected to be 53.6. Both readings are slightly below the December data.
The National Association of Realtors reports existing-home sales for December. Economists forecast a seasonally adjusted annual rate of 6.4 million home sold, fewer than November’s 6.7 million. In November, the median existing-home price was $310,800, up 14.6% year over year.
Write to Avi Salzman at avi.salzman@barrons.com
https://www.barrons.com/articles/the-dow-dropped-exxon-mobil-in-august-but-as-oil-prices-rise-so-does-its-stock-51610760633
2021-01-16 01:30:00Z
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