Mizuho sees value in U.S. oil stocks despite 2022 outperformance, Exxon Top Pick for 2023

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By Senad Karaahmetovic 

Mizuho analysts assumed research coverage of U.S. oil and gas stocks with a positive bias, despite outperformance in 2022.

The firm downgraded a number of companies, mostly on valuation, and upgraded two stocks - ExxonMobil (NYSE:XOM) to HF Sinclair (NYSE:DINO) to Buy from Neutral. The price target for the former is $140 per share, signaling an upside potential of nearly 30%.

"Although we have incorporated a more conservative outlook for earnings and cash flows than both management and consensus, it is hard to construct a realistic scenario where the company will not be a leader in cash generation for the next 3-5 years. This is not reflected in the modest discount to peers based on our FCF/EV estimates," the analysts said in a client note.

They are less bullish on Chevron (NYSE:CVX), which is assumed at Neutral (the prior rating was Buy).

"The company was a leader in cash return through the downturn between 2019 and 2022 and has one of the strongest balance sheets in our Energy coverage. However, with 1) the stock trading at a premium on FCF/ EV, 2) potential capital efficiency headwinds in the Permian, and 3) limited line of sight on long-term reserves, we take a more Neutral view of the investment case and would look for a better entry point," they wrote in a separate note.