Exxon Mobil Corporation (XOM)

[DiscoverGold]

Bull of the Day: Exxon Mobil Corporation (XOM)
By: Zacks Investment Research | March 7, 2022

Exxon Mobil Corporation (XOM) is a well-rounded oil and gas titan that’s gone on an impressive run over the past year and a half after it suffered through a long slump alongside the broader energy space. XOM posted great growth in 2021 and rising oil prices, along with a focus on keeping costs low, help make Exxon worth considering even amid the crisis in Ukraine.

The Comeback Story

The initial covid shock that sent oil prices and stocks of firms such as Exxon tumbling between February and April of 2020 seems like lightyears away. Oil prices rebounded in a serious way off their covid lows to around $65 a barrel by early March of 2021. Those levels now seem tame, with oil sitting at roughly $115 a barrel, as of late afternoon trading Friday.

Exxon and others benefitted from rising oil and energy prices amid the huge rebound in demand as the U.S. and economies around the globe soared back to life. Travel, including air travel, has already mounted a serious comeback and broader energy demand is returning to pre-covid levels.

Exxon reported $23 billion in profit in 2021. This marked its highest total since 2014 and included $8.9 billion in profit in the fourth quarter. The firm also generated $48 billion of cash flow from operating activities, the highest level since 2012, “more than covering capital investments, debt reduction, and dividend.”


Image Source: Zacks Investment Research

Exxon’s FY21 revenue soared 57% to $285.6 billion, Meanwhile, XOM swung from an adjusted loss of -$0.33 per share to +$5.38 a share. “Our effective pandemic response, focused investments during the down cycle and structural cost savings positioned us to realize the full benefit of the market recovery last year,” said CEO Darren Woods said in prepared Q4 remarks.

“We've made great progress in 2021 and our forward plans position us to lead in cash flow and earnings growth, operating performance, and the energy transition.”

Current Geopolitical Concerns

To say a lot has happened in the world since Exxon reported its Q4 results and provided guidance on February 1 is an understatement. The Russian invasion of Ukraine has upended global energy markets. The situation has sent oil prices from around $92 a barrel as recently as February 25 to over $110 a barrel. Oil hasn’t been at these levels since 2014.

Russia is a major supplier of oil and gas in Europe and elsewhere and it is unclear what is on the table in terms of energy-focused sanctions because the current situation has already caused prices to surge dramatically. Exxon said it’s halting operations at a multibillion-dollar oil and gas project in Russia and will stop investing in the country amid the attacks on Ukraine. Shell and BP have taken similar actions.


Image Source: Zacks Investment Research

Outlook

Exxon, like most of the industry, is slowing its capital spending and cutting costs amid rebounding demand instead of blowing out expenditures to ramp up production.

XOM said at its investor day at the start of March that its projected savings and other improvements are set to enable Exxon to “double earnings and cash flow potential” by 2027 compared to 2019, as well as “reduce breakeven costs by roughly $10 per barrel, boost returns on capital employed, and sustainably grow total shareholder returns and distributions.”

Current Zacks estimates call for Exxon’s revenue to climb another 8% to $308 billion to easily top its pre-Covid totals in 2019 and 2018. The company’s adjusted earnings are projected to surge 29% higher to $6.93 per share. Plus, XOM’s FY22 and FY23 consensus EPS estimates have jumped 16% and 12%, respectively since its Q4 release.

Some Other Fundamentals

Exxon’s earnings revisions activity helps it grab a Zacks Rank #1 (Strong Buy) right now. The stock also lands “A” grades for Growth and Momentum in our Style Scores system, and its industry sits in the top 10% of over 250 Zacks industries.

Exxon shares have surged 65% in the last two years to outclimb its highly-ranked industry’s 39% and the S&P 500’s 47%. This stretch of success includes a 35% surge to start 2022 vs. the benchmark index’s nearly 10% decline and its oil industry’s 25% gain.

XOM popped again on Friday to new 52-week highs of over $84 a share. Luckily it has more room to run before it returns to its 2018 levels and plenty of runway to get back to its 2014 peaks of around $100 a share.

Despite its recent climb, Exxon is trading at a 50% discount to its year-long highs at 12.1X forward 12-month earnings and right at its median. XOM’s current levels also represent a solid discount to where it traded for several years leading up to the pandemic.


Image Source: Zacks Investment Research

Bottom Line

Exxon’s 4.3% dividend yield provides investors solid income along with exposure to the resurgent oil and energy market. The stock’s yield tops its industry’s 4% average and crushes the 10-year U.S. Treasury’s 1.7% and the 30-year’s 2.2%.

Exxon’s stellar 2021 helped it repay about $20 billion in debt, or most of the total debt it borrowed during the pandemic downturn. And it announced in February a new $10 billion stock buy program. On top of that, Exxon is focused on expanding its low-carbon businesses, as part of its broader future-looking endeavors.

Read Full Story »»»

DiscoverGold