Exxon Mobil Corporation (NYSE:XOM) is set to report earnings tomorrow morning.  With what has happened to the price of oil over the last 6 months, it is with some surprise that shares of many oil companies have held up as well as they have.  Goldman Sachs downgraded the stock this morning, just a day after UBS downgraded the stock.  It makes you wonder if the analysts are on to something or if they are just late to the party.

Goldman Sachs’ analysts appear to believe that the bottom of theenergy cycle is at hand, and that investors are better served byputting their money in less defensive stocks. But the firm alsonoted that over the long run, Exxon "should provide steady,above-market returns."

So, Exxon is being downgraded because it’s too conservative. Who knew?And the Goldman wizards believe we’re near the bottom of the free-fallin energy prices? That’s probably only true if OPEC really can musterthe nerve to cut production severely.

The downgrade by UBS yesterday was a relative value call, as the firmsees more opportunities in other peers.  UBS noted that the flow ofmoney into the safe haven energy stocks is now less attractive and thatExxon’s performance seems overdone and its relative premiumvaluation looks stretched.

Exxon, like every other US oil company, will re-value its assets as ofthe end of 2008. Because the price of crude has dropped so far,reserves will inevitably lose substantial value. But this should havebeen priced into the stock already if Wall Street can genuinelyinterpret data from other companies and apply the same rules to sectorpeers. It’s surely no surprise to the folks at Goldman. After all,ConocoPhillips Corp. (NYSE:COP) should have taken all the surprise outwhen it took its $34 billion impairment charge.

Exxon Mobil’s stock is still down considerably from the highs of last May when the oil boom was running rampant.  But it has also bounced sharply from the October lows after the Street figured out that the company would continue to make money and was a safe haven stock for hard times.

Shares are down almost 2% at $77.70 this morning, and its 52-week trading range is $56.61 to $96.12.

Paul Ausick
January 29, 2009

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