The recent decline in Exxon Mobil (NYSE: XOM) shares is a great buying opportunity, according to Wall Street ratings firm RBC Capital Markets
The agency raised its rating to outperform from sector perform for Exxon Mobil shares, citing its strong capital returns including share buybacks and dividends.
"A combination of disappointing results and the acceleration of its investment plans has led Exxon to underperform peers significantly recently," the RBC analyst told clients Wednesday. "From now to 2025 we see the potential for substantial dividend growth alongside superior returns, both of which appear underappreciated to us."
The company's stock rocketed $1.24, or 1.6%, to $79.66, in Wednesday's early session after the report. Exxon Mobil shares declined 6.2% this year through Tuesday versus the S&P 500's 0.6% gain.
RBC raised its price target to $100 from $90 for Exxon Mobil shares, representing 27.5% upside to Tuesday's close.
Exxon's annual meeting is Wednesday.
The analyst noted the company's higher capital expenditures investment guidance that was 10% to 15% above Wall Street expectations for the next three years.
Exxon's "project queue warrants investment, and should lead to superior returns," he said. "We see Exxon's future opportunity set as one of the most attractive in the sector, and expect it to start bearing fruit from 2019."
The analyst predicts the company will raise its dividend by 4% in 2019 and then 5% per year starting in 2020. He also forecasts Exxon's share buybacks will rise "materially" after 2020.
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