Exxon Mobil Corp. was downgraded Friday by UBS because of “disappointing” production trends, increasing reliance on asset sales to hit earnings numbers, and other factors.
UBS lowered the oil giant to “Neutral” from “Buy” but left its $90 price target for the stock unchanged.
Exxon Mobil shares rose 27 cents to $86.79 in midday trading, near the top of their 52-week range of $67.03 to $87.94.
The UBS downgrade came a day after Exxon Mobil reported that second-quarter net income rose 49 percent to $15.9 billion. Nearly half the gain — $7.5 billion — was from selling off assets. Production of oil and gas fell.
UBS analyst William A. Featherston said the company had shown “continued disappointing production trends,” and added that “earnings quality (was) increasingly polluted by gains on asset sales.” Although the company’s adjusted earnings per share in the second quarter beat analysts’ expectations, it was “a low quality beat” because it included the gain from asset sales as if it were a recurring item.
Featherston said Exxon Mobil was among the best-run integrated oil companies — those that find and produce oil and natural gas and also refine and sell petroleum products. But, he said, management has sacrificed return on capital to pursue long-term growth in so-called unconventional energy, or resources that can’t be tapped through normal production techniques.
Featherston said Exxon Mobil shares were trading above its 5-year average price-to-earnings ratio and above the ratios at other oil companies. He added that there is a risk Exxon could reduce its rate of share repurchasing.
On Thursday Exxon Mobil reported that second-quarter revenue rose 1.5 percent to $127.4 billion. Net income of $15.9 billion, or $3.41 per share, compared with $10.7 billion, or $2.18 per share, a year earlier.
But Exxon Mobil produced less oil and natural gas and sold both fuels at lower prices. Without the sales of assets Exxon’s operating profit was $8.4 billion, the lowest since the third quarter of 2010 and well below analysts’ expectations.