Oil prices have cratered over the past year, and this has put a huge dent in some of the largest companies in the world. Even Exxon Mobil Corp. (NYSE: XOM) is feeling the squeeze. A key analyst decided to take a closer look at Exxon, and it had this to say about the oil giant.

Argus has a Hold rating for Exxon for a few reasons. First, the firm believes that Exxon’s normal valuation premium to peers has become excessive, and that this will limit potential share price appreciation in the near term. Also, Exxon recently reported its second-quarter earnings of $4.2 billion, or $1.00 per share, down from $8.8 billion, or $2.05 per share, in the prior-year period. EPS missed the consensus estimate of $1.11, but it beat the Argus estimate of $0.83.

The firm downgraded the stock back in February, based on its view that Exxon’s normal valuation premium to peers had become excessive, and on the belief that this would limit potential appreciation in the near term, given the uncertain commodity price environment.

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Exxon, in an effort to grow reserves, may pursue an acquisition that could destroy shareholder value — as occurred when the company overpaid for XTO Energy in 2009. Argus also believes that the decision to cut quarterly stock buybacks to $500 million, down from $1.0 billion in the second quarter and from $3.0 billion in the fourth quarter of last year, suggests that Exxon may face challenges in funding capital expenditures and dividend payments from internally generated cash flow. The firm expects these buyback cuts to weigh on investor sentiment in the near term. It is also worth noting that Exxon’s 3.7% dividend yield is the lowest among the supermajors in the coverage group.

CEO Rex Tillerson was relatively pessimistic when discussing the oil price environment and the supply/demand balance over the next three years. He cited a number of factors suggesting that oil prices would remain low for an extended period, including weak global economic conditions (particularly in Europe, China and Japan) and high crude oil storage levels. At the same time, he expects North American shale producers to be relatively resistant to the decline in oil prices due to their flexible cost structure. Exxon assumes an average Brent price of $55 per barrel over the next three years.

Argus’s average West Texas Intermediate (WTI) price forecasts are $55 per barrel for 2015 and $65 per barrel for 2016. For Brent, the average 2015 forecast is $59 per barrel and the 2016 forecast is $70. The firm notes that geopolitical instability, particularly in the Middle East, may result in large deviations from current price forecasts.

As a result, the firm lowered its 2015 EPS estimate to $4.19 from $4.21. The revised estimates reflect the expectations for lower realized commodity prices and a decline in stock buybacks.

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Shares of Exxon were down 0.3% at $78.40 on Friday morning. The stock has a consensus analyst price target of $90.00 and a 52-week trading range of $76.33 to $100.31. Since the Argus downgrade on February 9, Exxon shares have underperformed, with a loss on a total-return basis of 12%, compared to a gain of 3% for the S&P 500. Over the past 52 weeks, shares have lost 18%, compared to a total return of 10% for the S&P.

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