Is Exxon Mobil Finally Ready for a Big Breakout?

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Exxon Mobil Corp. (NYSE: XOM) has not been much of a great stock market participant for such a strong bull market. Its gains coming into Monday have only been 10% so far in 2013, about half the Dow Jones industrial Average and S&P 500 Index gains. Now we have one analyst upgrade calling for the recent gains to continue, and that could have positive implications for rival Chevron Corp. (NYSE: CVX) as well.

Argus has raised the Exxon Mobil rating up to Buy from Hold, and the independent research shop assigned a $104 price target for the oil and natural gas leader.

Argus believes that the third quarter will mark the low point in the company’s near-term results. It points out Exxon’s exceptionally strong financial position with a AAA credit rating. Despite heavy exposure to natural gas, its operating margins are well above the average, compared to large integrated oil and gas firms, and is second only to Chevron among the supermajors.

One word of caution: Exxon trades at a premium to peers based on price-to-earnings, price-to-book and price-to-sales ratios. The firm balances that by saying these premiums are warranted due to its low debt, strong cash flow and healthy operating margins. The $104 price target implies a multiple of 12.9 times the Argus 2014 earnings per share estimate. This generates an implied upside of 15% in the coming 12 months, when you include the dividend.

Where this starts to get interesting is that Argus pointed out Chevron’s strength as well. Chevron has only about 57% of Exxon Mobil’s market cap, but Chevron’s $121 stock price makes it a larger Dow Jones Industrial Average component by weighting because its share price is 30% higher than Exxon’s.

Chevron even has a 3.3% common stock dividend yield. If Exxon is liked at 12.9 times forward earnings, how does Chevron sound at less than 11 times expected earnings?

Trading at $121.20, Chevron’s consensus price target of $132.87 implies closer to 13% upside, if you include its higher dividend. We would also point out that the $104 Exxon Mobil price target from Argus compares to a consensus price target of $95.54 from Thomson Reuters.