IMO: Future Returns Will Likely Disappoint As Workforce Faces 20% Cuts

Imperial Oil's fair value estimate in our model has edged higher to approximately C$113.06 from C$112.94. This reflects analysts' modestly increased price targets across the Street as they factor in updated 2025 guidance, early 2026 outlook commentary, and the company's balance sheet strength and shareholder return commitments.

Analyst Commentary

Recent Street research reflects a mixed but generally constructive stance on Imperial Oil, with incremental price target increases offset by a handful of fresh downgrades. The updates highlight improving medium term cash flow visibility and capital returns, balanced against concerns around relative valuation and commodity mix exposure.

Bullish Takeaways

• Bullish analysts have raised price targets into the low to mid C$100s, suggesting upside remains relative to current trading levels even after the recent move in the shares.
• Several research notes highlight Imperial's strong balance sheet and low break even asset base as key supports for resilient free cash flow generation through 2025 and into the early 2026 outlook period.
• Commitments to sustained share buybacks and dividends are viewed as enhancing total shareholder return, reinforcing the case for a defensive, cash return driven energy holding.
• Incremental target bumps, even when tied to neutral style ratings, reflect higher confidence in execution on capital allocation and operating efficiency, which underpins the modest increase in fair value estimates.

Bearish Takeaways

• Bearish analysts have paired target price increases with rating downgrades, indicating that, in their view, much of the near term fundamental improvement is already reflected in the share price.
• Some research argues that relative to other North American energy names, Imperial's risk reward skew is less compelling, particularly for investors seeking higher growth or greater leverage to natural gas.
• Concerns persist that, despite strong cash returns, upside to production growth and multiple expansion could be constrained if macro conditions soften or if investors rotate toward gas weighted peers.
• The shift in ratings to Sell or Underperform signals a view that execution will need to remain near flawless to justify current valuation levels, leaving less margin for error on operations or capital projects.

What's in the News

• Imperial Oil completed a major share buyback tranche, repurchasing 12,183,936 shares, or 2.39% of shares outstanding, for CAD 1.47 billion under its June 23, 2025 program, reinforcing its capital return strategy (company filing)
• Third quarter 2025 production reached 462,000 gross oil equivalent barrels per day, the highest quarterly level in over 30 years, with net oil equivalent output up to 404,000 barrels per day despite slightly lower gas volumes (company operating results)
• For the first nine months of 2025, gross oil equivalent production rose to 436,000 barrels per day and net oil equivalent production to 383,000 barrels per day, underscoring steady volume growth year over year (company operating results)
• Imperial announced a multi year restructuring to centralize more corporate and technical functions into global business and technology centres, targeting at least CAD 150 million in annual expense reductions by 2028 and a roughly 20% workforce reduction by the end of 2027, alongside a one time before tax restructuring charge of about CAD 330 million in third quarter 2025 (company announcement)
• Major shareholder Exxon Mobil plans to cut about 2,000 jobs globally as part of a broader restructuring, while Imperial, nearly 70% owned by Exxon, is cutting around 20% of its workforce under its own efficiency program (Bloomberg)

Valuation Changes

• The fair value estimate has risen slightly, moving from approximately CA$112.94 to CA$113.06, reflecting a modest upward revision in the modeled intrinsic value.
• The discount rate has edged down marginally, from about 6.118 percent to 6.118 percent, indicating a negligible change in the assumed risk profile.
• Revenue growth has increased very slightly, from roughly 0.72 percent to 0.72 percent, with the adjustment too small to materially alter the growth outlook.
• The net profit margin has improved fractionally, rising from about 7.70 percent to 7.70 percent, reinforcing a stable profitability profile in the forecast period.
• The future P/E has ticked up modestly, from around 16.39x to 16.41x, signaling a marginally higher valuation multiple embedded in the forward assumptions.