Having lagged its peers over the past year, Exxon Mobil Corp. (XOM) is now starting to look like the one energy stock poised to outperform as oil prices trend higher. While big energy rivals have retrenched in the wake of the rise of renewable energy, cutting capital investment in favor of returning cash to shareholders, Exxon has been increasing its investments in oil and natural gas production. With expectations that demand for oil and natural gas will increase in line with an expanding global middle class, Exxon’s forward-looking investments are starting to attract the attention analysts, according to Barron’s.

Higher Expectations

John Herrlin, an energy analyst at Société Générale argues, “Exxon is a high-quality, disciplined and focused company that thinks in terms of decades, not years,” and gives the stock a Buy rating and price target of $87. Based on Tuesday’s close of $78.09, that price target implies a gain of more than 11%, a solid return in a relatively flat market. If Exxon were to move even higher and return to its previous peak of $104 reached in 2014, the gain would be as much as 33%.

Those would be significant gains for a stock that has fallen nearly 11% over the past three years, and is down almost 7% year to date (YTD). Meanwhile, the S&P 500 is flat on the year and the Energy Select Sector SPDR ETF (XLE) is up 3%. Exxon is currently trading at a trailing twelve month price to earnings ratio (P/E ratio) of 16.84, while the XLE currently trades at an average P/E ratio of 30.81. (To read more, see: Exxon a Top Pick Despite Recent Pullback: BofA.)

Reasons to Be Bullish

Optimism for the iconic energy company derives from its ability to “find and develop enormous energy deposits profitably.” Five such energy deposits that represent strong opportunities include deepwater oil projects off the coasts of both Guyana and Brazil, natural-gas fields and liquefied-natural-gas plants in Mozambique and Papau New Guinea, as well as oil and natural gas in the Permian basin region, according to Barron’s.  

One of the main reasons why Exxon is so good at turning these opportunities into profitable enterprises is its “integrated” business model, claims CEO Darren Woods who wrote in the company’s most annual shareholder letter that “The whole of Exxon Mobil is worth more than the sum of our parts.” For example, Exxon is able to capitalize on the synergies of having pipelines that connect its oil and natural gas fields in the Permian basin to its refining and chemical plants on the Gulf Coast of Texas.

Further, despite recent trends towards more renewable forms of energy, global demand for oil last year spiked by about 1.6 million barrels a day, up to 98 million barrels in total. The annual average over the past decade has been just one million barrels a day. With demand rising, Exxon plans to increase its energy output by 25% in hopes of doubling earnings by 2025, according to Barron’s. (To read more, see: 9 Energy Stocks Poised for Big Breakout As Oil Surges.)

Threats to supply could also provide bullish momentum for oil prices and consequently, energy stocks. For instance, energy stocks rallied earlier this week as concerns increased that the U.S. may pullout of the Iran nuclear deal, leading to reduced Iranian crude exports, according to a separate story from Barron’s.

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