EUR 850.00 For Business Accounts Only

Morningstar | Exxon Uses Analyst Day to Reiterate Its Compelling Long-Term Outlook

Exxon held is annual analyst day on March 7 where it made minor adjustments to its previously announced plans while largely reiterating the 2025 targets it introduced last year. Thus, we are leaving our fair value estimate and moat rating unchanged. Most notably, Exxon now plans to increase earnings by 140% by 2025 compared with a targeted 135% last year. Also, while it continues to target doubling operating cash flow by 2025, interim cash flow generation will be higher by $24 billion compared with last year’s estimates, which includes $15 billion from asset sales in 2019-21. The increase in earnings is largely from the upstream segment with both the downstream and chemical segments still expecting (and on track to) double earnings by 2025.

Behind the bump in upstream earnings potential is an increase in Permian and Guyana production targets. Exxon now expects to produce over 1.0 mmboed from the Permian in 2024 compared with 600 mboed by 2025 last year. Meanwhile, it previously announced an increase in its Guyana guidance to 750 mboed in 2025 from 500 mboed last year, with additional upside possible. The increases result in total volume guidance being bumped to 5.2 mmboed in 2025, net of asset sales, from 5.0 mmboed last year. Additionally, it ultimately expects the contribution of these low-cost resource additions with its other advantaged developments under construction to lift earnings per barrel by 60% by 2025 from 2019 levels and reduce per unit opex by 15% by 2022. The increase in volume, however, is accompanied with an increase in capital spending of about $4 billion through 2025, including $2 billion in 2019. That, however, is covered by the increase in expected cash flow. Of note is also management’s satisfaction with current leverage levels, which combined the with increase in expected cash flow opens the door for share repurchases. Currently, Exxon is one of the only integrated firms without an announced repurchase plan.

We continue to see shares as undervalued and think Exxon’s story is compelling. While the long duration of improvement might continue to keep some investors away, the strong performance of the last year combined with the introduction of share repurchases might bring some around.