February 3, 2020 / 10:23 AM / 18 days ago

Goldman downgrades Exxon to 'sell', slashes returns outlook

Workers are seen at the booth of ExxonMobil in preparation ahead of the International Conference & Exhibition on Liquefied Natural Gas (LNG2019) in Shanghai, China April 1, 2019. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. - RC1EC55D4870

LONDON (Reuters) - Goldman Sachs downgraded ExxonMobil (XOM.N) to “sell” following disappointing fourth-quarter results, as the Wall Street bank forecasted the oil and gas company will meet only half of its targeted returns by 2025.

Irving, Texas-based Exxon’s results missed Wall Street’s recently lowered estimates, with earnings sliding to $5.6 billion from $6 billion a year ago as weak oil and gas prices, sliding refining and chemicals profit margins offset a sharp increase in oil and gas production.

Exxon CEO Darren Woods described the margin weakness as “a short-term impact”.

But Goldman said its decision to downgrade Exxon from “neutral” stemmed from “lack of free cashflow limiting capital returns, and risk to long-term return on capital employed (ROCE)targets”.

Goldman said it saw “clear downside” to Exxon’s target of reaching 15% ROCE by 2025, with its own modelling now showing 8% ROCE due to lower downstream margins, lower crude oil prices and risks to execution of projects.

Goldman lowered Exxon’s share price target from $72 to $59. Exxon shares closed at $62.1 on Friday.

Reporting by Ron Bousso, editing by Ed Osmond

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