Street Calls of the Week: Exxon Mobil Receives Rare Upgrade

Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for American Airlines, Exxon Mobil, Sunoco, Avis Budget, and Coinbase.

InvestingPro subscribers always get first dibs on market-moving rating changes.

American Airlines upgraded

What happened? On Monday, Wolfe Research upgraded American Airlines Group (NASDAQ:AAL) to Outperform with a $17.00 price target.

What’s the full story? Wolfe Research upgraded American Airlines to Buy, as they see 2024 as a bridge year for airlines, with EPS bottoming out and RASM turning positive. The analysts note that the Airline Index has lagged the S&P 500 for four consecutive years, and that all airline stocks underperformed last year due to rising capacity and falling pricing. Wolfe expects mixed trends in 2024 and more upside potential as capacity growth moderates.

The analysts also find American’s valuation attractive, as it trades at low multiples of their EPS and EBITDAR estimates for 2024 and 2025. Wolfe projects a below-Consensus EPS of $1.75 for 2024, but a recovering EPS of $2.95 for 2025.

The brokerage argues that American Airlines is well-positioned to benefit from the rebound in the airline industry as it has a large and loyal customer base, a diversified network, and a strong balance sheet.

Outperform at Wolfe means “The security is projected to outperform analyst's industry coverage universe over the next 12 months.”

How did the stock react? American Airlines equity traded higher on the premarket headlines from $13.65 to $13.90, a gain of 1.68%. American opened the regular session at $13.95 and closed at $13.61.

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ExxonMobil upgraded

What happened? On Tuesday, TD Cowen upgraded Exxon Mobil Corp (NYSE:XOM) to Outperform with a $115 price target.

What’s the full story? TD Cowen is upgrading Exxon on valuation. The analysts forecast Exxon’s Free Cash Flow (FCF) to increase from $30B at strip Brent in 2024-25 to $36B at $65 Brent in 2027. The stock is valued at an average 8% FCF post-PXD share issuance, compared to their 6.5% used in the target price. For reference, Exxon traded better than 6% yield from 2017-2019. The growing cash flow and $28B balance sheet capacity should enable Exxon to sustain its $20B/yr buybacks, implying an 8.4% shareholder distribution yield.

The analysts value XOM on a Net Present Value (NPV) of FCF to 2027, using 2027 as a terminal year at 6.5% yield. The commodity market has just experienced two years of very strong pricing, with oil, refining margins, and global natural gas prices all well above historical levels according to the research note. TD Cowen anticipates a step lower in these commodity prices moving forward.

Exxon has been investing in low-cost projects, improving downstream competitiveness, and taking cost out of its business, driving down the oil price needed to organically cover its dividend. XOM guides to a $40/bbl dividend breakeven that it anticipates will continue to move lower to $35, with peers averaging over $50.

Outperform at TD Cowen means “The stock is expected to achieve a total positive return of at least 15% over the next 12 months.”

How did the stock react? XOM equity traded higher on the premarket headlines from $96.96 to $97.60, a gain of 0.55%. Exxon opened the regular session at $96.80 and closed at $97.91, a gain of 1.13% since Monday’s close.

Sunoco LP upgraded

What happened? On Wednesday, Citi upgraded Sunoco LP (NYSE:SUN) to Buy with a $65 price target.

What’s the full story? Citi upgraded SUN citing several cash flow enhancing transactions. The analysts highlighted the NS acquisition as a game-changer for SUN, as it diversifies its cash flows, improves its credit and liquidity, and expands its investment opportunities. The analysts also praised the financial benefits of the deal, such as the conservative synergies and the accretion potential.

Citi projected that SUN will double its distribution growth to a 4% CAGR and generate more than $0.2 billion in excess free cash flow after reaching its leverage target in mid-2025.

The analysts also noted that SUN’s valuation is attractive, as it trades at less than 8.0x 2026 EBITDA when synergies are realized.

Buy at Citi means “Buy (1) ETR of 15% or more or 25% or more for High risk stocks.”

How did the stock react? Sunoco opened the regular session at $57.38 and closed at $540.84 , a loss of 1.86% during Wednesday’s regular session.

Avis Budget upgraded

What happened? On Thursday, Deutsche Bank upgraded Avis Budget Group Inc (NASDAQ:CAR) to Buy with a $248 price target

What’s the full story? Deutsche Bank has upgraded Avis to Buy, as they believe that the weakness in Avis is partly due to the downward revisions in Hertz’s estimates, which are driven by depreciation rates and RPD (revenue per day). The analysts argue that Avis has important differences from Hertz, such as lower EV (electric vehicle) exposure, straight line depreciation, and steady ICE (internal combustion engine) pricing.

The analysts are expecting Avis to report strong 4Q23 earnings on February 12, and to clarify that the issues affecting Hertz are not affecting Avis. They think that this will be a clear and meaningful catalyst for Avis, as the market realizes that Avis is better positioned than Hertz in the rental car industry.

Buy at Deutsche Banks means “We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. “

How did the stock react? CAR equity jumped up on the premarket headlines, from $166.90 to $170.55. Avis Budget opened the regular session at $173.81 and closed at $173.41, a gain of 3.90% since Wednesday’s close.

Coinbase upgraded

What happened? On Friday, Oppenheimer upgraded Coinbase Global Inc (NASDAQ:COIN) to Outperform with a $160 price target.

What’s the full story? Oppenheimer boosted their recommendation on COIN to Buy, citing on their thesis that COIN will either win or dismiss the SEC lawsuit, that the Spot Bitcoin ETF is a positive development, that COIN’s fundamentals are improving, that COIN has positive GAAP EPS prospects, and that COIN has multiple catalysts in the near and long term. The analysts see a favorable risk/reward trade-off, as COIN has fallen 35% since Dec 28.

The analysts also praised COIN’s resilience and strength during the “crypto winter”, when many of its peers collapsed. Oppenheimer asserts that COIN continues fighting for its business and the industry, and that the company and its management are stronger and tougher than most people think.

Outperform at Oppenheimer means “Stock expected to outperform the S&P 500 within the next 12-18 months.”

How did the stock react? COIN equity traded up on the premarket headlines from $120.50 to $124.96. Coinbase opened the regular session at $127.16 and closed at $124.76, a gain of 3.10% since Thursday’s close.

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