Exxon Underappreciated on the Street: RBC

Exxon Mobil Co. (XOM), the largest U.S. energy company, is set to make a comeback after a period of poor stock performance and a series of disappointing results, according to one team of bulls on the Street. 

Shares of the Irving, Texas-based multinational oil and gas corporation jumped nearly 4% Wednesday to close at $81.50, reflecting a 2.6% decline year-to-date (YTD) and a modest 0.5% return over 12 months, underperforming the broader S&P 500's 1.9% increase and 12.9% gain over the same respective periods. (See also: Buy These Energy Stocks on Crude Oil Price Surge.)

Wednesday's rally marked XOM's biggest jump since September, driven by revived optimism from an RBC research note that upgraded the stock from sector perform to outperform.

RBC analyst Biraj Borkhataria wrote in a note to clients Wednesday that while Exxon has lagged its peers significantly in the recent period, due to the acceleration of its investment plans and its weaker-than-expected results, “from now to 2025 we see the potential for substantial dividend growth alongside superior returns, both of which appear underappreciated to us.”

'Most Attractive in the Sector'

Borkharatia applauded Exxon's increase in capital expenditure spending, guiding 10% to 15% above Wall Street expectations for the next three years. New projects should "lead to superior returns" and set the company up as "one of the most attractive in the sector," as its project queue is expected to start "bearing fruit" in 2019. 

The RBC bull expects XOM, with a current dividend yield of 4.2%, to lift its dividend by 4% in 2019 and 5% annually thereafter. Meanwhile, he wrote that share buybacks will rise "materially" after 2020. 

"ExxonMobil has historically been one of the most successful super-majors at investing through the business cycle and taking advantage of downturns by lowering its cost structure and high-grading its asset base," added RBC. (See also: Stocks Take a Hit on Trump’s Summit Cancellation.)

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