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Exxon Mobil's thinning margins earn downgrade from analysts

Published: 14:08 05 Jun 2023 EDT

Exxon Mobil

Exxon Mobil Corp has done well relative to its rivals over the past year, but the environment is changing such that there’s more risk for the stock in 2023 than 2022, according to analysts at RBC Captial Markets. 

The firm downgraded the company to Sector Perform from Outperform while maintaining its price target of $125. Exxon shares were up 0.1% Monday afternoon to $105.89. 

Exxon has benefited from “strong refining margins and improving perception on the duration of its free cash flow profile,” analysts wrote. “Looking forward, while we believe energy markets are likely to remain volatile, the outlook for oil products and gas markets appears more mixed than was the case in 2022, and we see XOM’s earnings momentum and risk-reward as more balanced from here.”

The downgrade comes roughly a year after RBC elevated the company to Outperform. There’s still some value there, hence the consistent price target, but the analysts noted that its refining margins have declined. 

“We expect earnings momentum to moderate as refining margins have fallen considerably, while chemicals margins remain challenged amid a tough economic backdrop,” analysts wrote. “We expect commodity prices to remain volatile, and with OPEC+ likely to support oil prices, we have a bias towards upstream levered names over downstream from here.”

The analysts continued, “Our oil strategist believes refining margins may remain under pressure, and XOM has more exposure to refining than global peers, while it also has significant exposure to Europe, which makes competitive dynamics tougher. At the same time, our chemicals team expects 2023 to be another tough year, with mid-cycle margins not likely seen until 2025.”

Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com

Follow him on Twitter @andrew_kessel

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