On Thursday, Piper Sandler adjusted its share price target for ExxonMobil (NYSE: NYSE:XOM), a major player in the energy sector, reducing it to $130 from the previous $142. The firm, however, continues to hold an Overweight rating on the stock. The adjustment follows an analysis of the energy sector's valuation, which, despite a favorable outlook, has not been as high as expected.
The firm notes that the energy group is trading at roughly a 9% free cash flow (FCF) yield for the year 2024 based on current projections, which is considered fair compared to recent trends. However, the sector is still seen as relatively inexpensive given the strong and sustainable FCF generation.
ExxonMobil, with its solid cost structure, resilient balance sheet, and consistent shareholder returns, coupled with significant commodity upside leverage, is deemed to be in an attractive position within the energy sector.
Piper Sandler expresses a preference for ExxonMobil over Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP) over Occidental Petroleum (NYSE:OXY), and Shell (LON:SHEL) amongst European energy companies. The revised price target for ExxonMobil is derived from a balanced approach, with a 50/50 weighting between a FCF yield target (based on the fiscal year 2024 annual FCF at a PSC Oil Price of $80/bbl Brent) and a target FY24 EBITDA multiple.
The EBITDA multiple target has been set at 7.0x, a slight increase from the previous 6.5x but still at a 1.0x discount to the historical average of 8.0x, reflecting a relative de-rating in the sector.
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