Last Update 09 Dec 25

Fair value Increased 0.10%

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.

Efficiency upgrades, digital automation, and flexible logistics are driving sustained margin expansion, structural cost reductions, and improved market access.
New projects, renewable fuels, and emissions reduction initiatives position the company for long-term production growth, revenue diversification, and better regulatory risk management.
Heavy reliance on oil sands and slow adaptation to energy transition risk weakening margins, restricting growth, and exposing Imperial Oil to long-term declines in demand and profitability.

Catalysts

About Imperial Oil

Engages in exploration, production, and sale of crude oil and natural gas in Canada.What are the underlying business or industry changes driving this perspective?

Major efficiency improvements at Kearl-including unit cash cost reductions (~$2/bbl YoY, productivity upgrades, and extension of turnaround intervals)-position Imperial Oil for sustained margin expansion and higher ROIC as production targets increase toward 300,000 bbl/d, improving future net margins and earnings.
Ramped-up production and expansion of solvent-assisted SAGD at Cold Lake, as well as new projects with decades of inventory, are expected to drive long-term production growth and lower per-barrel emissions and costs, supporting both higher revenue and better regulatory risk management.
The start-up of Strathcona's renewable diesel facility (with year-round production enabled by proprietary catalyst technology) positions the company to capture growing demand for lower-carbon transportation fuels, diversifying revenue streams and helping protect market access, thus supporting both revenue and net margin resilience over time.
Digitalization and automation investments, such as autonomous haul systems and process optimization, are delivering tangible cost reductions and paving the way for further operational efficiencies, thereby structurally improving competitive position, lowering operational risk, and supporting long-term net margin improvement.
Increased refined product sales and improved logistics flexibility (such as added Trans Mountain pipeline capacity) enhance market access and the ability to place volumes where margins are stronger, providing a foundation for steady or rising downstream revenue and improved overall earnings.

Imperial Oil Earnings and Revenue Growth

Imperial Oil Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Imperial Oil's revenue will grow by 1.5% annually over the next 3 years.
Analysts assume that profit margins will shrink from 9.5% today to 7.4% in 3 years time.
Analysts expect earnings to reach CA$3.9 billion (and earnings per share of CA$9.53) by about August 2028, down from CA$4.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$5.0 billion in earnings, and the most bearish expecting CA$3.0 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, up from 12.4x today. This future PE is greater than the current PE for the CA Oil and Gas industry at 11.8x.
Analysts expect the number of shares outstanding to decline by 2.74% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 5.99%, as per the Simply Wall St company report.

Imperial Oil Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Imperial Oil remains highly exposed to long-term decarbonization and energy transition risk, as the company's core assets and growth initiatives continue to center on oil sands, a carbon-intensive segment likely to face increasing policy, regulatory, and ESG constraints-posing a threat to long-term sales volumes and possibly eroding net margins as carbon pricing and emissions caps tighten.
Reliance on oil sands and large-scale, capital-intensive assets means persistent high maintenance and sustaining capex (with $473 million in Q2 driven by ongoing needs at Kearl, Syncrude, and Cold Lake); such requirements may restrict free cash flow available for shareholder returns or diversification, potentially dampening long-term EPS and share price appreciation.
The renewable diesel project at Strathcona, while a step toward lower-carbon solutions, depends heavily on stable feedstock and hydrogen supply and faces ramp-up risk; with regulatory-driven demand still nascent and operating at a modest scale relative to Imperial's portfolio, its ability to offset broader declines in petroleum demand and support revenue growth remains uncertain.
Upstream earnings and cash flows remain sensitive to global oil price volatility and market interventions (as evidenced by Q2 income being down $184 million YoY due to lower realizations); a structurally weaker or more volatile oil market as global demand plateaus or declines could put further downward pressure on Imperial's revenues and margins.
Despite investments in new solvent-based technologies (such as EBRT and SA-SAGD) to lower cost and emissions intensity, ramp-up timelines are measured in years (early 2027 for EBRT and 2029 for Mahkeses SA-SAGD), signaling a slow transition-leaving Imperial potentially exposed to demand erosion from electrification of transport and renewable energy competition, which could lead to stagnating or declining long-term revenue and profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of CA$106.353 for Imperial Oil based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$131.0, and the most bearish reporting a price target of just CA$81.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$51.8 billion, earnings will come to CA$3.9 billion, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 6.0%.
Given the current share price of CA$114.49, the analyst price target of CA$106.35 is 7.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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