Amid a global economic recovery, oil prices have remained firm. Even with the OPEC and allies agreeing on a gradual increase in production, Brent oil has sustained over $70 per barrel.
Exxon Mobil (NYSE:XOM) seems like an attractive name among oil and gas stocks. Besides the potential for stock upside, XOM stock has a robust dividend yield of 6.3%.
I am bullish on Exxon Mobil, with positive industry tailwinds likely to deliver higher cash flows. (See XOM stock charts on TipRanks)
Cash Flows to Swell from Upstream Assets
One reason to like Exxon Mobil is its Upstream business segment.
To put things into perspective, 90% of the company’s Upstream investments over the next four years have a cost-of-supply of $35 per barrel. Additionally, most of the developing projects have cost-of-supply that’s lower than $40 per barrel.
Therefore, even at $60 to $70 per barrel of oil, Exxon Mobil is positioned to generate robust free cash flows.
For example, at $50 per barrel oil, the company expects $3.5 billion in operating cash flow from its Guyana's assets in 2025. Similarly, Exxon's Permian assets are positioned to deliver operating cash flows of $4 billion by 2025.
Currently, XOM stock offers an annualized dividend of $3.48 per share. Cash flow from the upstream sector is likely to ensure that dividends sustain.
Growth from Other Segments
Like most oil and gas companies, Exxon Mobil has also ramped up investments in renewable energies. The company is bullish on hydrogen energy, currently producing 1.3 metric tons per year of it.
Exxon believes that the global hydrogen energy market is likely to be worth $1 trillion by 2040.
The company has also signed an agreement with Global Clean Energy. As a part of the agreement, Exxon will purchase up to 5 million barrels of renewable diesel per year.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, XOM stock comes in as a Moderate Buy, with four Buys and seven Holds assigned in the past three months.
The average XOM price target is $69.32 per share, implying 22.8% upside potential from current levels.
Bottom Line
Exxon Mobil has positive tailwinds in its Upstream segment, with Brent trading above $70 per barrel. Additionally, the company’s focus on value-added products in its Chemicals segment should deliver future profitability.
With healthy cash flows, dividends are sustainable. At the same time, Exxon Mobil has the financial resources to expand into renewables.
Considering these factors, XOM stock looks attractive.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article.
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