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Exxon Mobil Offers Limited Upside Potential, BofA Says in Downgrade

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Exxon Mobil Offers Limited Upside Potential, BofA Says in Downgrade

Exxon Mobil's (XOM) stock offers limited upside potential amid ongoing geopolitical concerns, while Chevron's (CVX) medium-term setup looks compelling, BofA Securities said Tuesday.

The brokerage downgraded its rating on the Exxon stock to neutral from buy while increasing its price objective to $158 from $154.

Last month, BofA upgraded Exxon following the announcement of a ceasefire between the US and Iran, with the company's stock dropping to $140, which the brokerage said Tuesday was seen as a "good entry point" amid easing energy prices.

"We saw the possibility of renewed hostilities as a free call option," BofA analysts, including Jean Ann Salisbury, said in a note to clients Tuesday. "Despite raising our (price objective) on estimate changes, we downgrade to neutral, concerned about downside if a ceasefire is reached, but limited potential upside given the 20% of currently shut-in volume in the Middle East and unclear forward path in Qatar."

The brokerage lowered its second-quarter earnings outlook for Exxon to $4.12 a share from $4.24 while also slashing its 2026 and 2027 estimates.

BofA said it likes Chevron's medium-term setup, as the combination of several factors has resulted in a "swath of progress" so far this year on numerous development opportunities.

"While not all of these opportunities will likely pan out, we are very encouraged to see (Chevron) refilling the funnel," the analysts said. "Whereas a year ago, most investors with whom we spoke believed they would need to lean on M&A for continued growth through the decade, the organic opportunity set now looks much stronger."

The brokerage raised its price objective on the Chevron stock to $227 from $210 and reiterated its buy rating while also naming it a top pick in the integrated and refining space.

"Importantly, Exxon has a significantly higher Middle East exposure, which, if disruptions persist for another quarter, could result in an incremental headwind (versus) only 4% exposure for (Chevron)," the analysts wrote. "Given this backdrop, we are surprised that (Chevron) and (Exxon) have traded largely in lockstep (year-to-date), potentially suggesting more potential upside for (Chevron) to come."

BofA now projects Chevron's second-quarter EPS at $5.79 versus its prior outlook of $5.80, according to the note.

Exxon and Chevron are scheduled to report June quarter results Friday.

Price: $153.50, Change: $-1.27, Percent Change: -0.82%

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