Exxon Mobil (XOM) is the world’s largest non-government-owned energy company; it operates globally along the entire hydrocarbon value chain, from energy exploration to end-user product sales and marketing, suggests Bill Selesky, an analyst with Argus Research, a leading independent Wall Street research firm.

We expect Exxon to benefit from strong energy market fundamentals, as well as from its improving balance sheet, reduced capital spending, and higher free cash flow. We also see the potential for dividend hikes, share repurchases, and further debt repayment this year. The shares yield about 4.7%. Our dividend forecasts are $3.56 for 2022 and $3.60 for 2023.

While demand for fossil fuels may never return to peak levels, the recovering economy and upcoming heating season should keep energy demand and prices strong in the medium term. Within Energy, we favor companies with strong balance sheets and a history of growing dividends.

We note that Exxon is taking more steps to address climate change, and continues to target net-zero greenhouse gas emissions by 2050. Management also said that it would reach its 2025 emissions reduction targets ahead of schedule by the end of 2022. In addition, it has pledged to spend $15 billion on low-emission investments through 2027.

On February 1, ExxonMobil reported a 4Q21 adjusted net profit of $8.795 billion or $2.05 per share, up from $110 million or $0.03 per share a year earlier. EPS easily beat our estimate of $1.40 and the StreetAccount estimate of $1.91.

We are raising our 2022 EPS estimate to $6.40 from $5.51 based on our expectations for continued economic recovery and strong commodity markets this year. The consensus forecast is $6.35. The shares trade at 12.6-times our 2022 EPS estimate and at 11.7-times our 2023 estimate, compared to a ten-year historical average range of 13-24.

The shares also trade at a trailing price/book multiple of 2.1, above the midpoint of the historical average range of 1.7-2.2; at a price/sales multiple of 1.2, at the midpoint of the historical range of 1.0-1.4; and at a price/cash flow multiple of 9.8, near the midpoint of the range of 7.8-11.7.

The enterprise value/EBITDA multiple is 10.4, above the midpoint of the historical range of 7.0-10.6. We believe that Exxon is favorably valued given our expectations for continued strong energy market fundamentals, and see further upside for XOM shares in 2022. We are raising our rating to "buy" with a target price of $92.

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