Exxon Mobil Corporation

XOM Details

Sale of Global Santoprene Business: Exxon Mobil Corporation (NYSE: XOM) is an international energy company and is one of the leading refiners and marketers of petroleum products. The market capitalization of the company as on 06 July 2021, stood at ~$259.81 billion. As per a recent update, ExxonMobil Chemical Company has signed an agreement with Celanese, regarding the sale of its global Santoprene business for $1.15 billion. The transaction involves manufacturing sites in Pensacola, Florida and Newport, Wales, along with products, process development, intellectual property, etc., to name a few.

Acquisition of Assets from XOM: On 18 May 2021, Empire Petroleum Corporation has announced that it has acquired the producing oil and gas assets and located in Lea County, New Mexico, from ExxonMobil Corporation’s XTO Holdings, LLC.

Q1FY21 Results Update: During the quarter, the company reported earnings of $2.7 billion, compared to a loss of ~$610 million in Q1FY2020. The capital and exploration expenditure stood at $3.1 billion in Q1FY21, a decrease of ~$4 billion from the previous corresponding period. It delivered total revenues of $59.14 billion in Q1FY21, compared to $56.15 billion in Q1FY20. The cash flow from operating activities was at $9.3 billion which supported dividend payment, capital expenditures and reduction of debt.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes it prone to macro risks, which might impact the demand and supply dynamics of petroleum products.

Outlook: The company has been making progress in its energy transition strategy with the launch of ExxonMobil Low Carbon Solutions business. It is working to develop innovative, large-scale carbon capture and storage (CCS) concepts which include evaluation of over 20 new opportunities.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company has recently made a discovery at Longtail-3 in the Stabroek Block offshore Guyana. The stock of XOM is trading close to its 52-weeks’ high levels of $64.92. The stock of XOM gave a positive return of ~83.73% in the past nine months and a positive return of ~41.03% in the past six months. On a technical analysis front, the stock of XOM has a support level of ~$57.90 and a resistance level of ~$64.56. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the impressive financial performance and decent cash flow performance. For this purpose, we have taken peers such as ConocoPhillips (NYSE: COP), Valero Energy Corp (NYSE: VLO), Phillips 66 (NYSE: PSX), to name a few. Considering the current high trading levels and indicative valuation, recent rally in the stock price and lower current ratio compared to the industry median, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of ~$61.37, down by 2.85% as on July 06, 2021.

XOM Daily Technical Chart, Data Source: REFINITIV

Target Corporation

TGT Details

Update On Dividend Payable: Target Corporation (NYSE: TGT) is a Minneapolis based general merchandise retailer. The market capitalization of the company as on 06 July 2021 stood at ~$121.42 billion. As per a recent update, the company has declared a quarterly dividend of 90 cents per share, reflecting an increase of 32.4% from the prior quarter dividends of 68 cents. The dividend is payable on 10 September 2021, with record date at 18 August 2021.

Q1FY21 Performance Update: The company posted revenues of $24.2 billion during the quarter, reflecting an increase of 23.4% on the pcp, driven by an increase in sales and other revenue. The operating income grew by ~407% to $2.4 billion, with a margin of 9.8%. Gross margin improved to 30% during the period, from a level of 25.1% in the pcp, driven by favourable category mix and merchandising activity.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company's continued success depends on its brand image and ability to provide a decent shopping experience to its customers. Any erosion in its brand or customer perception may lead to adverse impacts in its profitability.

Outlook: In Q2FY21 the company expects mid –to –high single-digit growth in comparable sales. It expects the Q2FY21 operating margin to be above the Q2FY19 figure of 7.2%. TGT also anticipates the full-year operating margin to be above the 2020 rate of 7%, with a potential to achieve 8% or higher. It has recently announced its sustainability strategy and plans to be a market leader for creating sustainable brands and experiences by 2030.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of TGT is trading close to its 52-weeks’ high levels of $247.34. The stock of TGT gave a positive return of ~105.93% in the past one year and a positive return of ~36.14% in the past six months. On a technical analysis front, the stock of TGT has a support level of ~$228.01 and a resistance level of ~$247.34. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at some premium to its peer average EV/Sales (NTM trading multiple), considering the improvement in financial performance, increased margins and optimistic guidance. For this purpose, we have taken peers such as Walmart Inc (NYSE: WMT), Home Depot Inc (NYSE: HD), Dollar General Corp (NYSE: DG), to name a few. Considering the current high trading levels and indicative valuation, recent rally in the stock price and high debt to equity ratio, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of ~$245.45, down by 0.46% as on July 06, 2021.

TGT Daily Technical Chart, Data Source: REFINITIV

Note: Purple Color Line Refers to Momentum Oscillator Relative Strength Index - RSI (14) Period

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.