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Exxon Mobil Stock Should Shine, Even in a Recession

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These reports, excerpted and edited by Barron’s, were issued recently by investment and research firms. The reports are a sampling of analysts’ thinking; they should not be considered the views or recommendations of Barron’s. Some of the reports’ issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed.

Exxon Mobil XOM-NYSE
Buy • Price $110.53 on Jan. 9
by Mizuho Securities
We are assuming coverage of XOM with a net asset value–based price target of $140. Although we have incorporated a more conservative outlook for earnings and cash flow than both management and the consensus, it’s hard to construct a realistic scenario in which the company will not be a leader in cash generation for the next three to five years.

XOM is a Top Pick in the sector for 2023….Even in a less constructive outlook for energy, the stock should outperform. And if the fears of a massive global recession prove unfounded, XOM’s strategic pivot to high-margin products could really pay off in cash flow and margin expansion. Despite an 80% increase in the stock price in 2022, we see Exxon Mobil trading at only a modest premium to the U.S. oil and gas sector, and at a discount to offshore peers.

International Flavors & Fragrances IFF-NYSE
Buy • Price $115.29 on Jan. 11
by UBS
IFF [is] trading at a slight discount to its historical average and a 15% discount to peers, [indicating] a lack of market confidence in the company’s ability to deliver on targeted growth and synergies from the [Nutrition & Biosciences] transaction. We believe that sentiment is at a bottom, and could start to improve as IFF delivers on its plan to achieve growth, pricing, and margin/return targets.

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We also see 2023 earnings as largely derisked, following the preliminary guidance provided in December. We believe a gradual recovery through 2024 should restore confidence, potentially lifting IFF’s multiple. This could push the stock higher. We see 2023 targeted divestments as a key to reducing leverage, which could help the stock valuation. Our price target is $132.

Tempur Sealy International TPX-NYSE
Outperform • Price $36.21 on Jan. 10
by Wedbush
While the mattress-industry outlook for the year is weak, the worst is likely behind us, following double-digit industry unit [sales] declines in 2022. With declines likely to ease and TPX share gains potentially accelerating due to [industry] consolidation, commodity input costs rolling over, and the possibility of very accretive acquisitions—namely Mattress Firm—we are adding TPX to Wedbush’s Best Ideas List and raising our target price to $45 from $30, or 16 times our estimated earnings per share for 2023, a modest premium to its long-term average of 15 times.

Volkswagen VOW3-Germany
Outperform • Price 127.66 euros on Jan. 11
by RBC Capital Markets
Worldwide, the VW Group sold 2.21 million vehicles in Q4/22, 0.9% higher sequentially, and 14.3% higher year over year. Western Europe (as determined by the five largest countries reporting), saw an 18% increase y/y.

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Sales of BEVs [battery electric vehicles] improved dramatically sequentially in Western Europe in the quarter, but declined in China, likely owing to lockdowns. VW reported selling 205,800 BEVs globally in the period, versus 149,300 in Q3, 117,100 in Q2, and 98,100 in Q1, when it saw a sharp decline from the 158,300 posted in Q4/21. Europe (increasing to 140,200 in Q4 from 83,100 in Q3) was responsible for all of the sequential improvement, [probably aided] by incentives that expired at year end.

China BEV sales, meanwhile, declined to 43,000 in Q4 from 49,200 in Q3, although 2022’s 155,700 bested 2021’s 82,685. Interestingly, volume BEVs (the VW, SEAT, and Skoda brands) were responsible for 65% of the sequential improvement. Premium brands (Audi, Porsche
) accounted for 35%. Our stock price target is 281 euros ($305.14). [VW also has shares traded over the counter in the U.S., under VWAGY and other symbols.]

Cutera CUTR-Nasdaq
Buy • Price $27.79 on Jan. 11
by Maxim Group
Although 4Q preliminary revenue was disappointing, we remain bullish on the company’s AviClear [laser technology for treatment of moderate to severe acne] and believe that the full commercial launch during the quarter will support higher gross margins and revenue growth in 2023. However, we are lowering our estimates and stock price target, to $55, from $80.

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AutoNation AN-NYSE
Buy • Price $115.47 on Jan. 11
by Benchmark
Auto Nation’s returns to shareholders have been at the top of the comparable dealer group’s. It has reduced share count by 40% over the past two years, continues to invest in AutoNation USA, and recently completed the acquisition of CIG Financial, marking the entrance into captive financing. While we have lowered our estimates owing to reduced used-vehicle assumptions and higher floorplan interest costs, performance should benefit from positive industry trends, cost containment, and a lower share count. Price target: $185.

To be considered for this section, material should be sent to Research@barrons.com.

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