Bank of America Merrill Lynch cut its rating on Exxon Mobil (XOM) to Neutral from Buy. Following the stock's rally, it is approaching its fair value, the firm contended.
WHAT'S NEW: After Exxon's shares performed well relative to other major oil companies, the stock now discounts oil prices of $73 per barrel and has a higher valuation than its peers, wrote Bank of America analyst Doug Leggate. Investors may have embraced Exxon as oil retreated because of its defensive characteristics, and its large scale may be attractive as more investors look to buy energy stocks in the wake of oil's rebound, the analyst believes. However, Exxon is now trading within 8% of its fair value of $96, according to Leggett. Moreover, higher oil prices have spurred the analyst to adopt a less conservative strategy. As part of that new strategy, he is upbeat on ConocoPhillips (COP). Given its high free cash levels, ConocoPhillips is well-positioned "to deliver outsize returns to shareholders in the form of buybacks," the analyst stated. Additionally, its "growth per share" could be competitive, enabling it to "bridge the gap between the majors" and exploration and production companies, according to the analyst. He kept a $96 price target on Exxon, and maintained a $71 price target and Buy rating on ConocoPhillips.
PRICE ACTION: In morning trading, Exxon lost 1.6% to $87.75 and ConocoPhillips fell 0.75% to $43.73.
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