Exxon Mobil Will Likely Post A Solid Quarter Backed By Higher Price Realizations
Exxon Mobil (NYSE:XOM) is set to report its Q1 2018 earnings on April 27, and we expect the company to post solid numbers, primarily driven by improved price realization for its upstream operations and higher margins for its refined and chemicals products. Exxon Mobil performed well in 2017, as growth in crude prices aided its margins, and we expect this trend to continue in 2018, with expected average WTI crude oil price of $56, representing a 10% jump from the 2017 average. We have created an interactive dashboard on Exxon Mobil’s expected performance for 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance.
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We estimate the Crude Oil & NGL to perform well in Q1 and full year 2018, primarily due to better price realization. Earlier in November 2017, the OPEC members extended their agreement to restrict the cumulative oil production by 1.2 million boed through 2018, and they have stood by their commitment, despite an increase in the U.S. oil exports to Asia. This has led to oil inventories at five year lows. This supported the rally in oil prices with WTI crude at the $69 mark, the highest since 2014. Other factors that led to this surge in prices include the Middle East tensions, with Syria accused of using chemical weapons in an attack earlier this month, and the U.S., U.K, and France responded with a missile attack. In addition, the Venezuelan economy is under tremendous stress and is expected to contract by 15% this year. These factors combined have pushed the oil prices higher. Accordingly, we estimate the annual average crude oil prices for Exxon could average at around $54 per barrel this year. It should be noted that a $54 price realization for Exxon reflects a 10% jump in pricing as compared to the prior year. A pricing boost will aid the segment revenue growth, and also provide room for margin expansion.
Looking at the company’s downstream operations, the company will restructure its operations by integrating its refining and supply division with its fuel and lubricants business in Q1. The restructuring will aid the company’s downstream profits by streamlining the operations and improving decision making. Exxon is also focused on reducing its exposure to stagnant markets, and it has sold assets in Indonesia and Japan. The company is said to be in talks to sell downstream assets in other not-so-profitable, stagnant markets. With such initiatives, we don’t expect much growth in revenues in the near term.
Overall, we expect the company to post earnings of $4.66 in 2018. We forecast a TTM price to earnings multiple of 19x by the end of 2018, which is slightly lower than most of the estimates for the sector, to arrive at our price estimate of $87 for Exxon Mobil. This implies a premium of around 10% to the current market price.
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