Is Exxon Mobil Stock A Good Pick Ahead Of Earnings?

by Trefis Team
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[Updated 7/28/2021]

The shares of Exxon Mobil (NYSE: XOM) have observed a 10% decline in the past month as benchmark prices declined due to the easing of production curtailments by OPEC. The company is committed to maintaining a strong balance sheet and returning capital to shareholders in the coming years. Despite an uncertain demand-supply environment, the company’s second quarter results are likely to benefit from high benchmark prices, assisting deleveraging plans. The second quarter revenues are likely to grow by around 100% (y-o-y) resulting in strong earnings expansion over last year’s depressed number. Trefis highlights the quarterly trends in revenues, earnings, stock price, and expectations for Q2 2021 in an interactive dashboard analysis, Exxon Mobil Earnings Preview.

How did Exxon Mobil perform in the first quarter?

In Q1, Exxon reported a 5% (y-o-y) growth in total revenues assisted by higher production volumes and realized prices. The company reported 3,787 MBOED of crude oil, natural gas, and other chemicals production, a decline of just 6.4% over Q1 2020. Given the sizable improvement in average realized price from $43/bbl in Q1 2020 to $56/bbl in Q1 2021, the cash flow from operations surged by 48%(y-o-y). In Q1, the company reported net income and operating cash of $2.7 billion and $9.2 billion, respectively. Moreover, the company invested $2.4 billion in property, plant & equipment, repaid $4 billion of debt, and returned $3.7 billion to shareholders as dividends.

[Updated 6/03/2021] – Banking On Renewables? Pick BP Stock Over Exxon

In a historic move, Engine No.1, an activist investor group, won two seats on Exxon Mobil’s (NYSE: XOM) board. Considering a paradigm shift at other major oil companies including, BP (NYSE: BP) and Royal Dutch Shell toward the renewable energy business, Exxon’s focus on oil has been a concern for investors. Notably, the company projects its operating cash flow to increase from $30 billion in 2021 to around $35 billion in 2025, assisted by new upstream investments and recovering benchmark prices. Interestingly, the company is focused on atmospheric carbon capture instead of expanding its renewable energy portfolio. While investor returns from conventional oil and renewables depend on government policies and market factors, Trefis highlights the key differences in the long-term strategy of Exxon Mobil and BP in this article. Our interactive dashboard, Buy Or Fear Exxon Mobil Stock, depicts historical stock price, revenues, and earnings of Exxon Mobil.

Oil business to drive Exxon Mobil’s earnings in the coming years

Per XOM’s investor presentation, the company’s long-term capital allocation priorities include investments in conventional oil & gas, maintaining a strong balance sheet, and sustaining dividends. Moreover, structural cost efficiencies are likely to assist earnings expansion over the coming years. The company’s new upstream investments, which provide returns of more than 10% at $40/bbl Brent, are projected to contribute 40% of production volumes and operating cash by 2025. Thus, the company remains committed to its conventional oil & gas business in growing long-term shareholder value.

The new energy business is a key focus for BP

After slashing production last year, BP released a new strategic direction of expanding its low carbon energy, electrification, and mobility businesses. As benchmark prices remained low from depressed demand, the company shifted its long-term focus from conventional oil & gas to new energy. Notably, the company has also changed its reporting structure to highlight the Gas & Low Carbon Energy segment’s impact on finances. The low carbon energy business and future mobility solutions are likely to attract 50% of BP’s capital expenses and generate high profitability by 2025. Moreover, the company has been divesting oil & gas assets to de-leverage the balance sheet and repurchase common stock.

Are there other better alternatives apart from BP? Check out Exxon Mobil Stock Comparison With Peers to see how XOM compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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