The Ratings Game: Exxon Mobil stock rises again after J.P. Morgan analyst turns bullish for the first time in 7 years

“For the first time in seven years of covering integrated oils since the peak of the sector in 2014, we are upgrading [Exxon Mobil] to overweight,” Gresh wrote in a note to clients.

Gresh upgraded the stock from neutral, and he also boosted his price target to $56 from $50.

He said there were many reasons not to recommend buying Exxon Mobil’s stock in the past, starting with “full valuation” in the 2014-2016 period to a “lack of capital discipline” in 2017-2019 and a “lack of defense” during the industry downturn caused by the COVID-19 pandemic.

“As we sit here today, we think that the bar is materially lower, execution might finally be turning a corner, 2021 consensus is too low (even at $50/bbl. Brent), the >7% dividend yield is more secure and valuation is more reasonable,” Gresh wrote. “Perhaps most importantly, we think that capital discipline is improving, with the [$20 billion to $25 billion] capex budget a self-imposed step required to preserve the dividend and balance sheet.”

No less than three analysts have now upgraded Exxon Mobil this week, according to FactSet. Bulls remain a minority on Wall Street, however. Nine of the 27 analysts surveyed by FactSet rate Exxon Mobil the equivalent of buy, while 15 rate it a hold and three rate it a sell.

Based on the percentage of analysts with buy ratings, Gresh said Exxon Mobil has the worst sentiment the global oil majors, and remains near the low-end of its historical range.

The stock’s recent rally comes after the stock plunged 40.9% in 2020, while the SPDR Energy Select Sector exchange-traded fund
XLE,
+3.49%
tumbled 36.9% and the S&P 500 index
SPX,
+0.04%
rose 16.3%.

Since Aug. 31, when it was booted from the Dow Jones Industrial Average
DJIA,
+0.19%,
Exxon Mobil’s stock has climbed 19.9%, while Chevron Corp. shares
CVX,
+1.90%,
which remain in the Dow, has gained 11.2%.