Is Imperial Oil Still a Buy After Its 2025 Pullback and 467% 5-Year Surge?

Here's the deal: Imperial Oil has been a rollercoaster ride for investors. Over the past five years, its shares surged 467%, but 2025 brought a sharp pullback, sparking debates about whether the stock is still a buy. Let's break down the numbers, strategy, and risks to see if this energy giant can still deliver.

Valuation: Overpriced or Undervalued?

Imperial's trailing P/E ratio of 13.72 and an EV/EBITDA of 9.5x according to recent analysis look modest compared to historical averages, but BMO Capital Markets recently downgraded the stock, citing a "large valuation premium" relative to North American peers as reported. That's a red flag. For context, the S&P 500 Energy sector trades at a P/E of around 15x, so Imperial's 13.72x isn't egregious-but the EV/EBITDA gap is concerning. If oil prices dip further, this premium could shrink fast.

But here's the counterargument: Imperial's Q3 2025 cash flow from operations hit $1.798 billion, and it returned $1.835 billion to shareholders via dividends and buybacks. That kind of capital return discipline is rare in the sector. The key question is whether the company can sustain these cash flows while navigating the energy transition.

Strategic Moves: Cost Cuts and Energy Transition

Imperial isn't sitting idle. It announced a $249 million restructuring charge in Q3 2025, part of a plan to cut $150 million in annual costs by 2028. That's a big deal-it's trimming 20% of its workforce by 2027, centralizing operations in global hubs to boost efficiency. These moves should improve margins, especially if oil prices stabilize.

On the energy transition front, the company is doubling down on its oil sands assets while investing in renewable diesel. The Strathcona Renewable Diesel project, expected to produce over one billion liters annually using low-carbon hydrogen and biomass, is a smart play. It's not just about compliance; it's about capturing premium markets for cleaner fuels. Imperial's 2030 goal to cut Scope 1 and 2 emissions by 30% compared to 2016 levels also aligns with regulatory trends, reducing long-term risks.

Future Cash Flow: Promises vs. Realities

The company's 2026 guidance is aggressive: $2.0–2.2 billion in capex, with upstream production targeting 441,000–460,000 boe/d as reported. That's a 10% increase from 2025 levels. But here's the rub: Imperial hasn't provided cash flow projections beyond 2026 as noted. Analysts are left guessing how its energy transition investments will pay off. For example, the Strathcona project won't contribute meaningfully to cash flow until 2027 at the earliest.

And let's not forget the elephant in the room: Exxon Mobil owns 68% of Imperial's float as reported. That means share repurchases and dividend policies are heavily influenced by its parent company. If Exxon decides to prioritize cash flow over growth, Imperial's flexibility could be constrained.

The Bottom Line: Buy, Wait, or Sell?

Imperial's valuation isn't screaming "bargain," but its strategic moves-cost cuts, energy transition bets, and shareholder returns-are solid. The real test will be whether its 2026 capex can drive production growth without overextending the balance sheet. If oil prices rebound and renewable diesel gains traction, this could be a winner. But if the energy transition accelerates faster than Imperial's plans, the premium valuation might not hold.

For now, I'd say this is a "watch and wait" stock. The fundamentals are strong, but the lack of long-term cash flow clarity and exposure to oil price volatility mean you shouldn't bet the farm. If you're already in, hold for the dividends and restructuring gains. If you're on the sidelines, wait for a clearer picture in 2026.