Mizuho sees value in US oil stocks despite 2022 outperformance, Exxon (XOM) Top Pick for 2023
By Senad Karaahmetovic
Mizuho analysts assumed research coverage of U.S. oil and gas stocks with a positive bias, despite outperformance in 2022.
The firm downgraded a number of companies, mostly on valuation, and upgraded two stocks – ExxonMobil (NYSE:) to HF Sinclair (NYSE:) to Buy from Neutral. The price target for the former is $140 per share, signaling an upside potential of nearly 30%.
“Although we have incorporated a more conservative outlook for earnings and cash flows than both management and consensus, it is hard to construct a realistic scenario where the company will not be a leader in cash generation for the next 3-5 years. This is not reflected in the modest discount to peers based on our FCF/EV estimates,” the analysts said in a client note.
They are less bullish on Chevron (NYSE:), which is assumed at Neutral (the prior rating was Buy).
“The company was a leader in cash return through the downturn between 2019 and 2022 and has one of the strongest balance sheets in our Energy coverage. However, with 1) the stock trading at a premium on FCF/ EV, 2) potential capital efficiency headwinds in the Permian, and 3) limited line of sight on long-term reserves, we take a more Neutral view of the investment case and would look for a better entry point,” they wrote in a separate note.
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