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Exxon Mobil’s stock could surge by 47% as production ramps up and growth accelerates, according to Bank of America Merrill Lynch.

BAML named the oil giant its top U.S. oil major pick for 2020—with a target price of $100, up from $68 on Tuesday and predicted a step change in cash flow

The back story. Exxon stock (ticker: XOM) has been out of favor with investors for much of 2019, aside from a 10-day streak in September as oil prices briefly surged. The oil giant’s shares have dropped 0.8% year to date as lower commodity prices have canceled out the company’s production growth, while rival Chevron (CVX) has edged 7% higher.

The company’s earnings of $3.2 billion—75 cents per share—in the third quarter beat Wall Street estimates but were down from $1.46 per share a year earlier.

Moody’s downgraded Exxon’s credit outlook last month from Stable to Negative and said the company was outspending its cash flow to fund growth plans. Exxon has invested heavily in boosting production, including projects in Guyana and U.S. shale field the Permian Basin.

The company could also sell up to $25 billion worth of oil and gas fields in Europe, Africa and Asia, according to media reports, in a bid to pump more money into major projects, such as Guyana, Mozambique, and Papua New Guinea.

What’s new. Bank of America Merrill Lynch said 2020 could “finally be Exxon Mobil’s year” and that the stock could surge 47%, citing successful project execution and accelerating growth.

A “step change” in cash flow could also see the stock price climb to $100—up from $68 in intraday trading on Tuesday, BAML said in a note.

“The inflection in Permian production is well under way while the first oil from Guyana confirmed for December kick starts what we expect to be 7-8 years of growth...” BAML analysts said.

BAML said the stock was its top U.S. oil major pick for 2020 and that counter cyclical investments and asset sales should vanquish market skepticism over whether it can outperform its peers.

It also expected Noncore asset sales to beat Wall Street expectations.

Looking ahead. Exxon is outspending cash flow, as pointed out by Moody’s, but key production milestones in the Permian Basin and in Guyana point to the step change in cash flow predicted by BAML. Plans to sell $25 billion of assets by 2025 may well be accelerated as the company focuses on a new generation of projects. The out of favor stock has room to rise, but how far depends on production growth and oil prices.

Email: callum.keown@dowjones.com