February 3, 2020 / 10:27 AM / 13 days ago

Goldman downgrades Exxon to 'sell', slashes returns outlook

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.

FILE PHOTO: The logo of Dow Jones Industrial Average stock market index listed company Goldman Sachs (GS) is seen on the clothing of a trader working at the Goldman Sachs stall on the floor of the New York Stock Exchange, United States, in this April 16, 2012 file photo. REUTERS/Brendan McDermid/File Photo

Irving, Texas-based Exxon’s results missed Wall Street’s recently lowered estimates, with earnings sliding to $5.6 billion(4.27 billion pounds) 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.

(Graphic: Exxon vs Shell 2019 - here)

(Oil Majors' cashflow - here)

Reporting by Ron Bousso, editing by Ed Osmond

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