A favorable macro backdrop helped Exxon Mobil Corp. (XOM) achieve impressive year-over-year earnings growth in the third quarter, offsetting the effects of production declines and hurricanes.
Upstream income jumped 48% to $9.35 billion on the back of high realized crude oil and natural gas prices. We believe that despite recent volatility in the commodity and credit markets, the fundamentals of Exxon's business remain strong. As such, our Buy recommendation remains unchanged, though we have lowered our estimates to reflect a lower commodity-price deck.
Exxon Mobil shares have outperformed the peer group as well as the broader equity markets in the current market turmoil owing to its status as a defensive play in turbulent times. Historically, the stock has traded at a premium to its super-major peers, reflecting its industry-leading returns, financial strength, and a highly regarded management team. Our new $100 price objective, reduced from $105 before, reflects a 2009 P/E multiple of 12.2x, well within historical trading ranges.
Our continued bullish stance on Exxon reflects our view that the stock's P/E multiple will expand as visibility regarding greater-than-currently-expected production growth emerges over the next few quarters. Exxon shares are expected to hold up better than its peers in the current environment of a relatively unfavorable macro backdrop for the group as a whole.
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