When most analysts issue Buy and Outperform ratings on Dow Jones Industrial Average and S&P 500 stocks, the typical projected upside is 8% to 15% at this stage in the bull market. Sometimes analysts go for much higher upside. Exxon Mobil Corp. (NYSE: XOM) was reiterated as Buy and on the Focus List at Argus, along with a price target of $104. If the firm is proven to be right, Exxon Mobil investors would see a total return of about 30% over the coming year or so.

Investors need to consider two key issues here on a side-bar view before wildly chasing this call and trusting it blindly. The first consideration is that Argus is generally not counted in the Thomson Reuters universe because it is independent research rather than true sell-side research. A second consideration is that the highest analyst target from the sell-side firms on Wall Street is actually just at $100.

Exxon was noted as appearing favorably valued relative to peers and as continuing to benefit from its diverse asset base and strong cost controls. Rather than making another expensive acquisition like the XTO Energy buyout in 2009, Argus believes that Exxon will instead continue to focus on leveraging its integrated business model and strengthening operational and financial execution. The firm also likes Exxon’s sustainable dividend yield of about 3.7%.

There is another concern that investors might want to take up in this above-consensus Exxon analyst call. Argus has an energy sector rating of Market Weight and has a Buy rating on the stock. As far as how they view oil in general, the Argus note says:

We think that investors should consider allocating 6% to 8% of their diversified portfolios to the Energy group. The sector includes the major integrated firms, as well as exploration & production, refining, and oilfield & drilling services companies. By our calculations, the projected P/E ratio on 2017 earnings is 30.7, well above the market multiple of 18.2 given the challenging sector earnings outlook. We forecast that West Texas Intermediate crude will average $56 per barrel in 2017, up from $43 in 2016 but well below the average price of $93 set in 2014. We also expect oil prices to remain volatile and look for a full-year price range of $43 to $66. Our 2017 forecast for the wellhead price of Henry Hub natural gas is $2.50 to $3.60 per MMbtu.

On the valuation and target justification, Argus further said:

They are trading at 20.0-times our 2017 EPS forecast, below the peer average of 22.1. They are trading in line with the peer average for price/book, price/sales, price/cash flow and price/EBITDA. We believe that XOM merits higher multiples based on the company’s diverse asset base, strong cost controls, and secure dividend. Our discounted cash flow model yields a fair value for XOM of $101 per share. Based on our blended analysis, we are reiterating our target price of $104, implying a potential gain of 30%, including the dividend.

Argus talked about earnings as well. On April 28, the oil and gas giant reported first-quarter adjusted net earnings of $4.01 billion, or $0.95 per share, up from $1.810 billion, or $0.43 per share, a year earlier. These earnings beat the consensus estimate and the Argus official earnings estimate. The higher earnings were said to be driven by higher realized prices for crude oil and natural gas, stronger refining results and cost-reduction efforts.

Argus has maintained its 2017 earnings estimate of $4.14 per share, higher than what is represented as a $3.96 consensus earnings estimate. That assumes improved commodity pricing and stable economic growth in China and Europe, and it also reflects modestly higher refining and chemical margins.

Exxon has a 52-week trading range of $80.30 to $95.55 a share, and it has a consensus analyst target price of $86.70.

So far we have seen Wall Street largely ignore the bullish call. Exxon shares were down 0.3% at $81.72 in mid-afternoon trading on Thursday.

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