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Exxon Mobil Upgraded as J.P. Morgan Says Estimates Too Low

Exxon Mobil gets an overweight rating from J.P. Morgan for the first time in seven years.
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Exxon Mobil  (XOM) - Get Exxon Mobil Corporation Report on Wednesday was upgraded to overweight from neutral by a J.P. Morgan analyst, who said he was bullish on the energy giant for the first time in his seven years of covering integrated oils, since the sector peaked in 2014.

Shares of the Irving, Texas, integrated energy giant at last check were up 1.3% to $48.49.

Analyst Phil Gresh, who raised his price target to $56 a share from $50, said expectations for Exxon Mobil are "materially lower," its execution "might finally be turning a corner," 2021 consensus estimates are too low, and its greater than 7% dividend yield is "more secure," according to the Fly.

Gresh said in an investors' note that Exxon's capital discipline was improving after years of wasteful spending. He sees a "potential upside case" where its dividend coverage break-even level approaches $45 a barrel of Brent and its free-cash-flow yield approaches 11.5% at $60 oil.

“Improved transparency, cost-reduction actions and increased investor pressure could all serve to push Exxon to put up more consistent results,”Gresh said.

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In August Exxon Mobil was removed from the Dow Jones Industrial Average as the company, and the entire industry, struggled with depressed demand stemming from the coronavirus pandemic.

Global crude prices have now more than doubled from lows a year ago.

On Monday Morgan Stanley analyst Devin McDermott upgraded Exxon Mobil to overweight from equal weight with a price target of $57, up from $49.

"Proactive cost and [capital-spending] cuts coupled with rebounding commodity prices and downstream and chemical margins support outsized rate of change in free cash flow and dividend cover," McDermott said, according to Bloomberg.

After preferring Chevron  (CVX) - Get Chevron Corporation Report for the past several years, McDermott said, he is shifting his view and prefers Exxon for 2021. He said Exxon shares have underperformed Chevron shares by about 50% over the past five years.