Why Exxon Mobil (XOM) is undervalued right now

Why Exxon Mobil (XOM) is undervalued right now
Written by:
Michael Harris
April 3, 2020
  • Recent positive revisions to analysts estimates hint a rally is coming
  • The stock could surge nearly 50%, bank analysts believe
  • XOM bulls target $76 as a first layer of resistance

Although XOM has underperformed compared to the Oils-Energy sector, analysts believe that the stock could surge almost 50% on the back of increased production and increased growth projections. 

Exxon Mobil Fundamentals

Over the past month, XOM has lagged behind the Oils-Energy sector quite a bit. The oil and energy giant has gained only 0.39%, which is much lower than the sector’s gain of 4.53%, or the S&P 500’s gain of 3.81% in that particular period of time.

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Moreover, the projected earnings for 2019 aren’t helping the stock move higher. Research firms expect Exxon to report a decrease of nearly 50% compared to the prior year as far as earnings per share are concerned, in addition to the expected drop in revenue of 8.6%. 

However, Exxon has been showing positive signs in the past weeks, which prompted analysts to believe that XOM might rally in the coming weeks and months. For instance, Bank of America Merrill Lynch notes that XOM may surge nearly 50% due to an increase in production and growth. 

According to the bank, the stock may reach $100 in 2020, BAML analysts said:

“The inflection in Permian production is well under way while the first oil from Guyana confirmed for December kickstarts what we expect to be 7-8 years of growth…”

Furthermore, recent revisions to analyst estimates to the upside are likely to help the stock as well. 

XOM Technical Analysis

As the stock market is surging towards record highs, Exxon Mobil (XOM) stock is trading 33% off its record high of $104.76, set in the summer of 2014. Since then, the price action has created a series of lower highs which put downside pressure on the stock’s price.

XOM weekly chart (TradingView)

As seen in the weekly chart above, the XOM stock is trading below the key bull/bear trend line (the ascending blue trend line) that connects important data points in the last 9 years. In the previous year, the price action has created a series of lower highs and higher lows to create a symmetrical triangle.

As XOM has bounced off of the triangle support, we expect the price to continue higher. A breach of triangle’s resistance is likely to pave the way for a test of the underside of the ascending trend line around the $76 mark. In addition to the bull/bear line, the 100-WMA also trades in the zone around $76.

A break of the bull/bear line would turn the environment around the XOM stock from bearish to bullish. In this case, the 200-WMA above $80 would be the next target for the bulls. On the downside, the price action is supported by the triangle’s support and multi-year horizontal support around the $65 mark.