Here's Why Hold Strategy is Apt for Imperial Oil Stock Now
Imperial Oil Limited IMO has experienced a notable 3.3% increase in its share price over the past year, outperforming the broader oil and energy sector, which saw a decline of 7.2%. The company has also outpaced its competitors within the Canadian Oil and Gas Exploration and Production sub-industry, with Cenovus Energy Inc. CVE and Canadian Natural Resources Limited CNQ reporting declines of 32.5% and 19.8%, respectively, during the same time. Such relative strength naturally leads investors to ask: Is this a signal to buy now, or does patience offer a better entry point?
1-Year Price Comparison
To answer this, it is important to understand the broader context behind Imperial's momentum. Headquartered in Calgary, IMO is more than just a prominent Canadian oil company, it is a key industry player with a diverse portfolio spanning oil and gas production, refining, marketing and chemical manufacturing. As Canada's largest supplier of jet fuel and a top producer of asphalt, IMO holds a commanding presence in the market. Crucially, this strength is amplified by its deep strategic ties to ExxonMobil XOM, which holds a 69.6% ownership stake, providing IMO with access to global expertise, resources and technology.
Basically, the company makes revenues by exploring and extracting oil and gas, refining them into products like gasoline and diesel, and distributing these to its customer base.
But what exactly has driven its performance over the past year? Let us explore the key factors driving its success and evaluate whether this momentum can be maintained in the future.
Key Factors Boosting Imperial's Market Position
Integrated Business Model Mitigates Downside Risks: Unlike pure-play upstream producers, Imperial benefits from vertical integration, combining oil production (Upstream) with refining and marketing (Downstream). In the first quarter of 2025, Downstream earnings surged to C$584 million, up C$228 million from the fourth quarter of 2024, due to strong margin capture, offsetting softer Upstream volumes. This diversification provides resilience against oil price swings, as refining margins often improve when crude prices dip.
Shareholder-Friendly Capital Allocation: Imperial has a proven track record of returning capital to its shareholders through dividends and share buybacks. In first-quarter 2025, the company paid C$307 million in dividends and announced plans to renew its Normal Course Issuer Bid, signaling confidence in future cash flows. Historically, Imperial has accelerated buybacks in the second half of the year, providing potential upside for investors. The company's disciplined capital allocation, balancing growth investments (e.g., renewable diesel, Leming SAGD) with shareholder returns, enhances its appeal as a reliable income and growth stock.
Strategic Projects With a Renewable Edge: Imperial is advancing key growth projects, including the Leming SAGD development at Cold Lake (expected to add 9,000 barrels per day at peak production) and the Strathcona renewable diesel facility, set to start in mid-2025. The renewable diesel project positions IMO as a leader in Canada's low-carbon fuel transition, aligning with regulatory demands and consumer trends. Additionally, the Enhanced Bitumen Recovery Technology pilot at Aspen could unlock long-term, low-emission production growth. These initiatives demonstrate Imperial's commitment to both traditional energy leadership and sustainable innovation.
Efficiency-Driven Cost Reductions: Imperial has made strong progress in cutting costs and improving efficiency, especially at its Cold Lake and Kearl sites. At Cold Lake, the company has lowered its cash costs by more than C$3 per barrel in the first quarter year over year, due to the large part to the success of the Grand Rapids solvent-assisted SAGD (steam-assisted gravity drainage) project. Looking ahead, Imperial plans to reduce costs even further, targeting C$13 per barrel at Cold Lake and C$18 at Kearl.
One of the key steps toward this goal is optimizing maintenance schedules. At Kearl, for example, the company has doubled the time between major maintenance shutdowns from every two years to every four. This not only improves efficiency but also helps keep costs down. These efforts show that Imperial is well-positioned to remain profitable, even when oil prices are unpredictable.
Strategic Infrastructure Positioning: Imperial benefits from its strategically located assets and integrated infrastructure across Canada. The company owns and operates key pipelines, storage facilities and transportation networks that provide reliable access to markets. This vertical integration helps mitigate midstream bottlenecks that often plague energy producers in Canada. With increasing global demand for reliable energy suppliers, Imperial's established infrastructure provides a durable competitive advantage.
Headwinds That Could Weigh on Imperial's Outlook
Oil Price and Margin Volatility: Despite strong operational execution, Imperial remains highly sensitive to fluctuations in crude oil prices and refining margins. In first-quarter 2025, the company reported that WTI crude oil prices averaged C$71.42 per barrel, down from C$76.86 in first-quarter 2024. While refining margins have improved year over year, they remain volatile and subject to macroeconomic uncertainty. Additional risks include trade tensions, such as potential U.S.-Canada tariffs. A significant decline in oil prices or a weakening of refining crack spreads could pressure Imperial's earnings and cash flow, potentially affecting its capacity to maintain share buybacks and sustain dividend growth.
Operational Risks and Weather-Related Disruptions: Imperial's first-quarter production was impacted by extreme cold weather in February, with Kearl's output falling to 256,000 barrels per day (down by 21,000 barrels year over year). While the company has improved cold-weather protocols, such events highlight the vulnerability of its operations to unforeseen disruptions. Unplanned downtime at Syncrude and maintenance-related throughput reductions in the Downstream segment (refinery utilization at 91% compared with 94% year over year) further highlight operational risks.
Lower Bitumen Prices Pressure Upstream Realizations: Imperial experienced weaker realizations in its oil sands operations due to falling bitumen prices, impacting upstream margins. The narrowing of the WTI-WCS spread also added pressure. Unless Canadian heavy oil differentials improve, the company's upstream earnings could remain under pressure, reducing the segment's contribution to total profitability.
Heavy Reliance on Commodity Price Environment: Despite downstream strength, Imperial's earnings remain sensitive to commodity prices. Upstream profitability was significantly impacted by lower crude realizations in the first quarter. While downstream margins were strong, any reversal in refining economics or crude spreads could materially affect future performance, highlighting exposure to macro volatility.
Limited Exposure to LNG Growth: Unlike some Canadian peers who are investing in Liquefied Natural Gas ('LNG') export projects, Imperial remains focused almost exclusively on oil and refined products. This means the company may miss out on the growing global demand for natural gas as a transition fuel. The lack of LNG exposure could become a relative performance drag as global energy markets evolve.
Final Verdict on IMO Stock
Imperial benefits from a strong integrated business model, combining upstream production with downstream refining and marketing, which helps reduce the impact of oil price volatility. The company continues to deliver strong shareholder returns through dividends and share buybacks, while advancing key growth and renewable energy projects like the Strathcona renewable diesel facility. Cost reduction efforts and operational efficiency improvements, particularly at Cold Lake and Kearl, position Imperial for long-term profitability.
However, the company remains vulnerable to commodity price swings, with first-quarter 2025 upstream margins pressured by lower bitumen prices and WTI-WCS spreads. Additionally, operational risks like weather disruptions and limited exposure to LNG growth may hinder its ability to compete with more diversified peers in the evolving energy landscape.
Given this mix of strengths and potential challenges, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
See This Stock Now for Free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
Imperial Oil Limited (IMO): Free Stock Analysis Report
Cenovus Energy Inc (CVE): Free Stock Analysis Report
Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CTV News
8 minutes ago
- CTV News
Ontario to make Ring of Fire a special economic zone ‘as quickly as possible': Ford
Protesters chant and wave flags during a demonstration outside the Ontario Legislature at Queen's Park in Toronto, Monday, June 2, 2025. THE CANADIAN PRESS/Cole Burston TORONTO — Ontario intends to designate the mineral-rich Ring of Fire as a so-called special economic zone 'as quickly as possible,' Premier Doug Ford said Thursday. Ford said he and several ministers will consult all summer with First Nations about the new law that allows the Ontario government to suspend provincial and municipal rules before making the designation. 'We need to start moving on that,' Ford said of the designation for the Ring of Fire. Last week, Indigenous Affairs Minister Greg Rickford and Energy and Mines Minister Stephen Lecce said they would hold off on making the area a special economic zone until they had consulted with all affect First Nations. The law seeks to speed up the building of large projects, particularly mines. Ford's government has committed $1 billion to develop the Ring of Fire. Three First Nations have signed various agreements with the province to help build roads to the region, as well as develop the area where it connects to the provincial highway system. However, First Nations across Ontario have risen up to protest the province's new law, livid about what what they describe as the government's audacity to strip away any law it sees fit for any project at any time. They say it tramples their treaty rights and ignores their concerns. The First Nations want to be part of development, including mines, but want to be equal partners with the province on the legislative side. They have warned Ford repeatedly that they will take the fight to the courts and to the land. Blockades of highways, railways and mines are on the table this summer, numerous First Nations said. 'This is a once in a generation opportunity for our First Nations communities and I understand some may disagree, but I'll tell you, a lot of them agree,' Ford said. Tensions have been high at the provincial legislature over the past few weeks because of the opposition to the bill. Dozens of First Nations members flew from the far north to Queen's Park to watch the province pass Bill 5, the Protect Ontario by Unleashing Our Economy Act, on Wednesday. Security booted about a dozen of them from the legislature's chambers for raining jeers down upon the politicians as they passed the bill into law. NDP legislator Sol Mamakwa, the representative for Kiiwetinoong where the Ring of Fire is located, was also kicked out earlier this week for saying Ford was 'telling untruths' to First Nations about his government's plans for the Ring of Fire. There is plenty of opposition to the new law in addition to First Nations' concerns. Critics also say the bill guts protections for endangered and threatened species. The legislature rose for its annual summer break and will not return until Oct. 20. This report by The Canadian Press was first published June 5, 2025.
Globe and Mail
8 minutes ago
- Globe and Mail
Steady interest rate complicates mortgage math and the Home of the Week: Canadian real estate news for the week of June 6
Hi, I'm Moira Wyton, an audience editor at The Globe filling in for Jacob from Vancouver, the other real-estate hotbed of Canada. This week, we're crunching the numbers on why the Bank of Canada's decision to hold its key interest rate could make it harder for homeowners and prospective buyers to figure out their mortgage plans. Plus, we'll dive into the downsides of downsizing and one property worth a look. Try The Globe's business and investing news quiz The Bank of Canada held its policy rate at 2.75 per cent for the second consecutive time, citing 'unusual uncertainty' around inflation and continuing trade tensions with the United States. The BoC's decision will have some reverberating effects on the real estate market. As Erica Alini writes, a rate hold doesn't help homeowners who are facing a hefty increase in their mortgage renewal in the next few weeks. Even though the gap has shortened in the past year, homeowners are still left to work out the math on their finances. And as Salmaan Farooqui writes, the BoC announcement won't be seen as encouraging for first-time homebuyers who have been waiting on the sidelines for a sign to dive into the housing market. Some experts think later this year will be the time for housing markets to heat up – if more rate cuts materialize. If Ottawa's plan to offer a GST rebate to first-time buyers of new homes is meant to ease affordability and speed up construction, some builders say it will barely move the needle where it's needed most – and could actually drive up prices elsewhere. Last week the Department of Finance said it would remove GST on new homes sold for less than $1-million and rebate some of the tax on homes below $1.5-million. But as Shane Dingman writes, critics say those limits don't reflect the prices facing buyers in Canada's most expensive housing markets in Toronto and Vancouver, limiting the rebate to apply to a modest condo at most. And while it may not make a dent in the most expensive cities, one real estate agent says the threshold would include, ironically, 'luxury'-level homes virtually everywhere else in Canada. That could give investors a further leg up in those markets and drive out-of-reach prices even higher for first-time buyers. Their share of new home sales has already shrunk to barely five per cent as investors dominate pre-sales over the last 15 years, according to industry data. The rebate also wouldn't include anyone 'buying up' – moving from a condo to a townhome, or from a duplex to a detached home – when builders say those buyers are critical to generating pre-sales, which have sharply declined in the GTA and other areas since last year. And as builders push Ottawa to remove GST on all new homes, a decades-long rebate debate has been revived over whether a new home should be considered a consumer good at all, or taxed like one. Downsizing is a popular choice for those looking to simplify their lives and spend less time and money caring on upkeep, but many homeowners are still unaware that less space doesn't necessarily mean fewer problems. As freelancer Katrya Bolger writes, the downsides of downsizing range from unforeseen financial costs, like penalties for breaking a mortgage or storage fees for belongings, to lifestyle challenges, like having less outdoor space or room for guests. Michelle Thorne learned that lesson the hard way. She downsized in 2015 while she was still working as a teacher in Barrie, Ont., going from a four-bedroom house to a three-bedroom townhouse close to shops and services she figured she would use in retirement. But it was a hard adjustment to a smaller space. She missed the quiet of her old neighbourhood and the time she had spent outside in her garden, realizing she had been thinking too much about what she'd need in the future rather than how she wanted to live in the present. Two years later, Thorne moved again to a quiet two-bedroom bungalow near the water. Other downsizers Katrya spoke with also had advice on how to make it work – like decluttering instead of paying for extra storage – and how to know when smaller isn't necessarily the best for you. Personal finance advice, in this economy? Tariff uncertainty, stock market volatility and the unpredictable whims of a certain U.S. President have left many Canadians wondering whether it's a good time to buy or sell a home, renovate or lock in their mortgage rates. Globe reporters answered 42 of the most-asked money questions from readers to help Trump-proof their finances. And as personal finance reporter Sal Farooqui notes, it's no wonder readers had so many questions about real estate. 'It's hard to understate Donald Trump's impact on real estate in this country,' Sal told me. 'Economists and real estate professionals generally thought our housing market would be chugging along now that interest rates have dropped notably. Instead, buyers are sitting scared on the sidelines and purchases are at extremely low levels because Trump's global trade war has made things so uncertain.' The advice covers everything from downsizing to investment properties and mortgage rates, and the gist is that if you can wait to offload an investment, you should. But on the other hand, it could also be a better time to buy than usual for first time home buyers who have secure employment 'because rates are low, prices have dropped and there's very little competition,' says Sal. Rates shown are the lowest available for each term/type and category (insured versus uninsured) as of market close on Thursday, June 5. As the vacancy rate goes up in Vancouver, renters do have more options – but unfortunately, those renters don't include lower-income households, notes real estate writer Kerry Gold. The city is 'still far from an abundance of affordability in our time, especially for those on living wage incomes,' said Andy Yan, associate professor of professional practice in urban studies at Simon Fraser University. Even as the market downturn drove the city to approve more purpose-built rental buildings than condos in 2024, a reversal of the proportion pre-2022, lower rents still haven't materialized. That's because of the high cost of land, construction, insurance, financing and more are making developers more likely to hit pause than to lower rents, said Prof. Yan. 90 Madison Ave., Toronto – Full gallery here You don't need a cat – or nine lives – to enjoy this Annex-style brick mansion that takes a classic to new heights. Bought by a born-and-raised New Yorker in the early 2000s, the home's massive addition centred around a three-storey atrium now maximizes natural light, something the buyer longed for growing up in the East Village. Now they sometimes need sunglasses in their living room, but it's created the feel of a ski chalet or backcountry cottage right in the city. Parts of the Victoria mansion are woven into the renovation, along with brushed steel, light wood and suspended catwalks, plus an elevator installed later for an aging relative. There are also still two separate apartments in the original building – either a nice income stream or a potential for expansion.
Globe and Mail
8 minutes ago
- Globe and Mail
Canadian unemployment rate rises to 7% in May as economy adds 8,800 jobs
Statistics Canada says the unemployment rate rose to 7 per cent in May, up a tick from 6.9 per cent in April. The agency says overall employment was little changed amid a gain of 8,800 jobs in the month. More coming.
