Barclays Capital initiated coverage of Imperial Oil (IMO.TO) with an overweight rating and a price target of C$46 per share, saying that the company's oil sands play has been undervalued by investors.

We think Imperial is an inexpensive, relatively hidden oil sands play. Interestingly, although the company has long been one of Canada's largest oil sands operators, it has never been viewed and valued as an oil sands play by investors, analyst Paul Cheng wrote in a note to clients.

Cheng said this misperception creates a good investment opportunity, particularly since he expects the company within two years will be at the start of a major long-term growth period that could last through 2020.

Oil Sands accounts for 74 percent of Imperial's 2010 total production mix compared to Suncor at 51 percent, 23 percent at Cenovus and 14 percent at Canadian Natural.

Calgary-based Imperial Oil has proved reserves of about 2.5 billion oil-equivalent barrels. Exxon Mobil owns 70 percent of Imperial Oil, which is also one of the Canada's top natural gas producers.

The analyst expects Imperial's oil & gas production to grow 8 percent a year between 2010 and 2014, with a 6.5 percent a year average growth rate through 2020.

 Although we could be a bit early into the stock, given the company's expected lack of production growth in 2011-12 as well as the likely large negative free cash flow over the next couple of years (heavy capital outlays to fund Kearl), we suggest long-term investors gradually build positions, Cheng wrote.

Finally, in view of the company's already large oil exposure, the analyst believes the shares should bode well under a rising oil price environment.

Shares of Imperial Oil closed Wednesday's regular trading session at C$37.77 on the Toronto Stock Exchange.