Is Imperial Oil (IMO) Still a Buy in 2026 Amid Analyst Downgrades and Shifting Capital Priorities?

The energy sector in 2026 is navigating a complex landscape of oversupply, volatile oil prices, and divergent capital strategies. For Imperial Oil (IMO), the question of whether it remains a compelling investment hinges on reconciling bearish analyst sentiment with the company's robust financial performance and ambitious capital allocation plans. While recent downgrades highlight valuation concerns, a closer examination of Imperial's operational strength and long-term strategy suggests a contrarian case for its potential.

Bearish Sentiment: Valuation Pressures and Analyst Skepticism

BMO Capital's downgrade of Imperial Oil to "Market Perform" in late 2025 underscored a critical issue: the stock's elevated valuation relative to peers. With an enterprise value to EBITDA (EV/EBITDA) ratio of 9.5 times, Imperial's shares trade at nearly four times the average of North American competitors, according to analyst Randy Ollenberger. This premium, coupled with the conclusion of the 2025 Normal Course Issuer Bid (NCIB), has raised concerns about limited upside without a significant oil price rebound as reported by Yahoo Finance.

MarketBeat.com's consensus rating of "Reduce" and an average price target of C$112.30 further reflect skepticism, particularly as the stock recently dipped below its 200-day moving average-a technical indicator often associated with short-term bearish momentum as noted in MarketBeat's alert. Analysts at CIBC and Desjardins have also trimmed their ratings, citing broader industry headwinds and valuation risks as reported in MarketBeat's alert.

Contrarian Case: Strong Financials and Strategic Resilience

Despite these concerns, Imperial's third-quarter 2025 results paint a picture of operational excellence. The company reported a record net income of $539 million, driven by upstream production of 462,000 gross oil-equivalent barrels per day-the highest in over 30 years as detailed in Imperial's announcement. At Kearl, production averaged 316,000 barrels per day, while Cold Lake's performance reinforced the company's ability to optimize its core assets as detailed in Imperial's announcement. These figures highlight a business that is not only resilient but also outperforming peers in a challenging market.

Imperial's 2026 capital spending strategy, forecasted at $2.0–$2.2 billion, is equally compelling. The company is prioritizing high-impact projects such as secondary bitumen recovery at Kearl, infill drilling at Cold Lake, and digital infrastructure upgrades in the downstream sector as outlined in Imperial's guidance. These investments align with a broader goal of maximizing existing asset value while preparing for regulatory shifts, such as emissions-related requirements. The Strathcona Renewable Diesel project, set to produce 1 billion liters annually using low-carbon hydrogen and biomass feedstock, further underscores Imperial's pivot toward sustainable growth as described in BCG's analysis.

Navigating Industry Trends: A Contrarian Edge

The energy sector's 2026 outlook is clouded by an expected oil supply surplus of 3.85 million barrels per day, per the International Energy Agency. While this could drive prices below $60 per barrel-a level below the breakeven costs for many U.S. producers-Imperial's cost discipline and operational efficiency position it to outperform. The company's upstream production guidance of 441,000–460,000 gross oil-equivalent barrels per day in 2026, combined with a focus on reducing unit cash costs at Kearl and Cold Lake, suggests a buffer against margin compression as detailed in Imperial's guidance.

Moreover, Imperial's capital allocation strategy contrasts with peers like Chevron and Exxon Mobil, which are cutting 2026 spending by 10% as reported by Reuters. By maintaining-and even increasing-investment in high-return projects, Imperial is betting on a 2027 price recovery while peers retrench. This divergence could create a valuation gap, particularly if oil prices rebound as anticipated.

Valuation Realities and Long-Term Prospects

Critics argue that Imperial's EV/EBITDA premium is unsustainable in a weak price environment. However, the company's net-zero Scope 1 and 2 emissions target by 2050, supported by technologies like carbon capture and storage (CCS), signals a forward-looking approach that could attract long-term investors as described in BCG's analysis. Additionally, its coast-to-coast logistics network and strong brand position the downstream segment to benefit from refining margin improvements, even amid lower crude prices as detailed in Imperial's guidance.

While Wall Street's median price target of $58.79 implies a 36% downside from current levels as reported by Tickernerd, this figure may not fully account for Imperial's ability to execute its capital plan or the potential for a mid-2026 oil price rebound. The company's $1.835 billion shareholder return in 2025 also demonstrates a commitment to value creation, even as it balances growth and dividends as detailed in Imperial's Q3 results.

Conclusion: A Cautious Bull Case

Imperial Oil's stock is undeniably under pressure from valuation concerns and industry-wide challenges. Yet, its operational strength, disciplined capital spending, and strategic pivot toward sustainability and renewable energy present a compelling case for a contrarian investor. While the near-term outlook for oil prices remains uncertain, the company's ability to generate cash flow, optimize costs, and invest in high-impact projects could position it as a winner in a post-oversupply environment. For those willing to look beyond the bearish noise, Imperial Oil may offer a rare combination of resilience and long-term growth potential in a sector increasingly defined by volatility.