Goldman Adds Exxon Mobil To 'Conviction Buy' List, States 'Run With The Tiger'

In a report published Tuesday, Goldman Sachs analyst Neil Mehta added shares of Exxon Mobil Corporation (NYSE: XOM) to the "Goldman Sachs Conviction List" as the analyst's $95 price target implies a 20 percent return.

According to Mehta, after multiple years of negative production growth, Exxon's production is poised to increase through 2017 as several major upstream projects will come on line. The analyst is forecasting the company's total production will grow on average 3 percent per year from 2015 to 2017, with a 5 percent growth rate for oil and 1 percent growth rate for natural gas.

As such, Exxon holds the potential to offer investors a "rare" dividend and free cash flow growth story among its large oil peers. The analyst is expecting the company's free cash flow to ramp from $9 billion at $57/bbl Brent in 2015 to $19 billion in 2017 assuming $65/bbl Brent. At the same time, Exxon will also benefit from a lowered capital expenditure and improved volume, which may also result in a 6 percent dividend hike through 2017.

Mehta argued that in a "challenged" crude oil market, dividend growth (which Exxon is expected to pursue) is a preferred area of focus for investors rather than just focusing on the dividend yield.

Mehta also stated that Exxon's refining activity is an "underappreciated" growth driver as R&M net income is expected to increase from $3.0 billion in 2014 to $5.0 billion in 2017.

The analyst concluded that Exxon's shares offer an "attractive" risk to reward profile at current levels due to "a strong first quarter earnings per share report, the in-service of Kearl, improved global refining margins, more realistic expectations for the crude price outlook from investors and a solid six percent dividend raise."