Cash Flow Upside a Rally Catalyst By TipRanks
Amid a global economic recovery, oil prices have remained firm. Even with the OPEC and allies agreeing on a gradual increase in production, has sustained over $70 per barrel.
Exxon Mobil (NYSE:) seems like an attractive name among oil and gas stocks. XOM stock offers potential stock upside and a strong dividend yield of 6.3%.
Exxon Mobil is a company I believe in. Positive industry tailwinds are likely to lead to higher cash flow. (See XOM stock charts on TipRanks)
Cash Flows to Swell from Upstream Assets
One reason to like Exxon Mobil is its Upstream business segment.
To put things into perspective, 90% of the company’s Upstream investments over the next four years have a cost-of-supply of $35 per barrel. Additionally, most of the developing projects have cost-of-supply that’s lower than $40 per barrel.
Exxon Mobil has the ability to produce strong cash flows even at $60-$70 per barrel.
Exxon Mobil expects to generate $3.5 billion of operating cash flows from Guyana’s assets by 2025 at $50 per barrel. Exxon’s Permian assets can generate operating cash flows in excess of $4 billion annually by 2025.
Currently, XOM shares offer a $3.48 annualized dividend. It is possible that the dividends will be sustained by cash flow from upstream sectors.
Growth from Other Segments
Like most oil and gas companies, Exxon Mobil has also ramped up investments in renewable energies. Exxon Mobil is bullish about hydrogen energy. It currently produces 1.3 million metric tons of it each year.
Exxon estimates that by 2040, the world’s hydrogen market will be worth approximately $1 trillion.
Global Clean Energy has also been signed into an agreement by Exxon. Exxon is also committing to purchasing up to 5,000,000 barrels annually of renewable diesel.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, XOM stock comes in as a Moderate Buy, with four Buys and seven Holds assigned in the past three months.
The current XOM target price is $69.32, which implies a 22.8% upside from the current level.
Exxon Mobil has positive tailwinds in its Upstream segment, with Brent trading above $70 per barrel. Additionally, the company’s focus on value-added products in its Chemicals segment should deliver future profitability.
Dividends can be sustained with healthy cash flows. Exxon Mobil is also able to grow into renewables.
These are all factors that make XOM stock appealing.
Disclosure: Faisal Humayun didn’t hold any positions in the securities discussed in this article at the time it was published.
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