The Stock Makes a Comeback.
Is Exxon (XOM) the next recovery play, post-pandemic? Renewable energy such as solar, wind, and electric have been welcomed enthusiastically by Wall Street and retailers. Unfortunately, such enthusiasm has abandoned the side of big oil. The negative effects of oil climate change and the uncertain outlook of COVID-19 related lockdowns have scared off all the investors. ExxonMobil has took on considerable amount of pressure with the COVID-19 pandemic ravaging the world and its tremendous debt burden. ExxonMobil took on nearly $2.4 billion loss in the first nine months of 2020 and a fading cash flow. Regardless, ExxonMobil kept to its commitment: Dividends. It was and still remains a dividend play, but now with an upside of up to 30% to it. Taking a look at the chart below, ExxonMobil has a lot of recovery left to it.
Looking at Crude Oil
New Discoveries and OPEC
Moreover, ExxonMobil found its 18th oil discovery in Stabroek Block and upgraded its estimate of recoverable oil to more than 8 billion barrels. It looks to go forth with developing the Payara oilfield in the Stabroek Block, looking at bringing it alive around 2024 – this has the ability to produced an additional 220,000 barrels a day. This will undoubtedly contribute to ExxonMobil production and bring additional cashflow with low operating costs as the world recovers from the pandemic. Past week, we also know that OPEC made an unusual move – Saudi Arabia will commit to reducing its oil production by one million barrels a day while Russia and Kazakhstan with shy production increases – the overall oil production being reduced.
The Tide is Turning for Big Oil
Are we seeing a comeback for big oil? Morgan Stanley certainly thinks so. For the past 6 months, analysts have been either neutral or bearish on the outlook of Exxon. It seems optimism is creeping back up with big oil such as Chevron (CVX) and Exxon (XOM). Morgan Stanley analyst Devin McDermott raised his rating on the stock to Overweight from Equal Weight and sees a potential upside of 30% on top of the already paying dividends. Through the pandemic, Exxon did not budge on this one element: Dividends. Taking on billions to its debt and laying off their own employees just to stay committed to their dividend. It seems like their loyalty to their shareholders will keep the company afloat for now. As of now, Morgan Stanley’s price target sit $57, with a dividend yield of a 7.5%.