Exxon Mobil Corp (NYSE:XOM) shares are up 25.4% year-to-date in 2022 as investors have piled into energy stocks, value stocks and dividend stocks. One analyst said Thursday that a closer look at Exxon's fundamentals reveals it may actually be an under-the-radar growth stock.
The Analyst: Bank of America analyst Doug Leggate reiterated his Buy rating and $110 price target for Exxon.
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The Thesis: Leggate said Thursday that Exxon's long-term growth strategy is transitioning from four years of investment to an extended period of cash flow growth in 2022. Over the next five years, Leggate estimates Exxon will generate $100 billion in excess free cash flow at Brent crude oil prices of $60 per barrel. Brent crude is currently trading above $112/bbl.
"Critically, with spending held flat, XOM’s annual free cashflow increases almost 5x at flat $60 (real). Who knew? XOM is a growth stock!" Leggate said.
In addition to being a cash flow machine at crude oil prices above $60, Leggate projects Exxon's break-even crude oil price will fall from $41 in 2021 to $30 by 2027, creating downside protection for investors in the event of a sharp drop in oil prices.
Leggate says Exxon will likely have the capacity to buy back a whopping 30% of its stock over the next five years. He is also anticipating management will increase the stock's 4.4% dividend in time.
For now, Leggate said Exxon remains his top oil major stock pick, largely because its cash flow growth is outpacing its entire peer group.
Benzinga's Take: While cash flow growth is certainly attractive in its own right, Exxon is still a far cry from the type of stock investors typically consider a growth stock. Leggate is projecting Exxon will grow revenue by 80.8% in 2022 before the oil major's revenue falls 17.5% in 2023 and another 10.8% in 2024.
