Exxon Stock Fundamental Analysis
On Feb.2, Exxon reported a 92.7% plunge in fourth-quarter earnings to 3 cents per, beating views by 2 cents, as revenue dropped 30.7% to $46.54 billion, falling short of Zacks Investment Research estimates for $48.6 billion.
The upstream division reported a loss of $18.5 billion vs. a gain of $6.1 billion in the year-ago quarter. But downstream operations posted a loss of $1.2 billion vs. a profit of $898 million.
Total production fell 8% to 3.7 million barrels of oil equivalent per day. Permian production climbed 42% year-over-year to 418,000 oil-equivalent barrels per day in 2020. Exxon now sees volumes of approximately 700,000 barrels per day by 2025, down from an earlier view of more than 1 million bpd by 2024.
Management also announced the creation of the new ExxonMobil Low Carbon Solutions business, which will focus on carbon capture and sequestration projects.
CEO Darren Wood told analysts that Exxon can maintain its dividend with Brent at $45 a barrel, while $50 would allow the company to focus on reducing debt or returning capital to investors.
But to protect its payout, the company is cutting spending and jobs. Exxon sees 2021 capital program at $16 billion-$19 billion, down from $21.4 billion in 2020. Exxon had already cut 2020 investment by $10 billion vs. 2019 levels.
In December, Exxon slashed its five-year spending plan. The company now plans to spend $19 billion or less in 2021, and $20 billion-$25 billion a year between 2022 and 2025. That’s down from a prior forecast for an annual investment of $30 billion during the same period.
Exxon earnings have stagnated at 0% over the last three years, according to IBD’s Stock Checkup. On the revenue side, Exxon’s three-year growth rate has fallen 9%. Investors generally should look for stocks with sustained earnings and sales growth of at least 25%.
Exxon stock does offer a strong 7.6% dividend yield. But that’s been rising in part because shares have trended lower for the past five years. A high dividend yield is a poor reward for a falling stock price.
Meanwhile, doubts are growing on Wall Street that Exxon can maintain its current dividend, even with the latest spending cuts. On Dec. 1, analysts at JPMorgan said a dividend cut is still possible in early 2021, interpreting Exxon’s pledge to “maintain a reliable dividend” as falling short of the promise to keep it at the current level.
Exxon Stock Technical Analysis
Exxon earnings — and XOM stock — tend to rise and fall with crude oil prices, which can be highly volatile.
March 2020 saw the biggest drop in oil prices since the start of the 1991 Gulf War as OPEC+ failed to reach a deal on output cuts. But the group eventually came together as the coronavirus pandemic slammed prices further. April even saw U.S. crude go negative for the first time ever.
Exxon stock took another hit after it was replaced by Salesforce (CRM) on the Dow Jones Industrial Average in August, after over 90 years on the key index. The Dow Jones has shifted away from industrial stocks and towards technology firms in recent years.
Chevron even topped Exxon in market capitalization briefly during trade in early October. But Exxon has since regained its title of largest U.S. oil company.
Meanwhile, global demand cratered. The International Energy Agency saw annual demand drop by 8.8 million bpd in 2021, the first since 2009. That was a stunning reversal from its January outlook of an increase of 1.2 million bpd.
OPEC has begun increasing its production quotas in January as demand rose with the coronavirus vaccine rollout. But the vaccines also add uncertainty to oil markets as new, more contagious variants of the virus emerge. In December, Saudi Oil Minister Prince Abdulaziz bin Salman said that “it is a bit of an unknown” on how many people will take the vaccine.
XOM stock popped above the 50-day average in mid-November after Pfizer (PFE) announced its Covid-19 vaccine was 90% effective in recent tests. Shares are now forming a cup with handle base with a 51.18 entry point according to MarketSmith chart analysis.
The relative strength line, which tracks a stock vs. the S&P 500 index, has been lagging since 2011 and is just above record lows.
Exxon stock has woeful IBD Composite Rating of 2 out of 99 and a poor 8 EPS Rating.
As with other oil stocks to buy and watch, Exxon stock will rise and fall with crude oil prices. So even when Exxon looks good based on fundamentals and technicals, crude oil prices may suddenly plunge, taking XOM stock down too.
Investors could choose to buy an energy exchange-traded fund as a way to play sector moves while avoiding stock-specific risk. Energy Select Sector SPDR Fund (XLE) and iShares U.S. Energy ETF (IYE) are two energy-related ETFs. But those ETFs are still exposed to crude oil price swings.
Exxon Mobil Shale Investments
As demand shrinks, independent U.S. shale companies are scaling back spending to stay within their balance sheets, leaving the door open for oil majors.
Exxon became a bigger shale player with a $5.6 billion deal in 2017 to double its oil and gas holdings in the Permian Basin.
Before the pandemic, Exxon announced plans last year to produce 1 million barrels per day in the Permian Basin as early as 2024, an 80% jump from prior estimates. But Exxon said in October that it plans to end the year with just 10 rigs in the Permian down from 50-60 rigs before the start of the coronavirus pandemic.
Exxon is in the midst of asset sales that could reach $25 billion through 2025, across Europe, Africa and Asia as it looks to free up more capital to invest in the Permian Basin and massive projects like an oil field in Guyana.
Rivals are moving in to expand shale holdings. In July, Chevron announced it was buying oil and gas producer Noble Energy in an all-stock deal valued at $5 billion. Noble has 92,000 acres in the Delaware basin of the oil-rich Permian.
But a potential blockbuster merger could be possible. Exxon and Chevron executives were in preliminary talks of a merger in the early days of the Covid-19 pandemic, sources told the Wall Street Journal. The talks aren’t currently ongoing, but the sources told the Journal the discussions could be revisited in the future.
Woods said during the Q4 analyst call that said he wouldn’t speculate on reports in the press but the company “continues to be active to look for opportunities to grow value.”
Exxon Stock Is Not A Buy
Exxon stock has been in a prolonged downward trend and the former Dow Jones component also has a very weak long-term RS line. But the stock has formed a base and is trading above its key 50-day and 200-day lines.
Exxon earnings are volatile and should continue to be under pressure as the coronavirus drags on demand. XOM stock also swings with crude oil prices. That can mean rapid short-term gains but also abrupt sell-offs like what was seen following the March OPEC meeting.
Bottom line: Exxon stock is not a buy yet but investors should watch for a breakout.
Follow Gillian Rich on Twitter @IBD_GRich for energy news and more.
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