Exxon could surpass Chevron in 2021, the analyst predicts

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Exxon Mobil

has long been the king of American oil, but this year investors and many analysts have preferred it

Chevron.

In fact, Chevron’s market cap briefly exceeded that of Exxon in October after starting the year at a considerable disadvantage. Exxon (ticker: XOM) is down 38% this year, while Chevron (CVX) is down 25%.

Now an analyst believes it’s time to change bets. Roger Read of Wells Fargo on Tuesday upgraded Exxon to overweight while lowering Chevron to equal weight.

“This is not a critique of Chevron, but rather a change in our view that in 2021, the latter could be the former for a while,” he wrote.

Exxon has reduced operating costs and should see margins in its refining business and chemicals would return to historic levels, Read predicts. These changes should allow Exxon to improve its performance even if oil prices remain low. The company won’t suddenly see the kind of returns Exxon generated at its peak, but the market tends to reward the improvement and Read believes investors will see evidence of that.

“We do not expect production growth and only a minimum generation of free cash flows, which includes disposable income,” Read wrote. “However, this represents a significant change from recent years of significant cash burns and increased leverage.”

For most investors, the big question is whether Exxon can continue to pay its dividend at current levels or whether it will be forced to cut it next year. The company has said it has no plans to add more debt, so it will need operations to improve to cover the payment. Read is confident that Exxon will do enough to allay these concerns.

“In our view, this is enough to slightly increase stocks and lessen concerns about the sustainability of dividends,” he wrote.

Read’s target price for Exxon is $ 53. Shares were trading at $ 43.12 on Tuesday, up 2.2%.

Read’s optimism comes as Exxon faces new challenges, including pressure from activist investors to improve its plans to curb carbon emissions and increase yields. An analyst even suggested earlier this year that Chevron and Exxon should merge and call the combined company Chevron.

Write to Notice Salzman to [email protected]