Down 9% Since The Beginning of 2023, What Should You Expect From Exxon Mobil Stock?

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After a 9% decline since the beginning of 2023, at the current price of around $100 per share, we believe Exxon Mobil (NYSE: XOM), a leading explorer, producer, transporter, and seller of crude oil and natural gas — and North America’s largest energy company by market cap — could see gains in the longer term. XOM stock has declined from around $110 to $100 year-to-date, as oil prices have been surprisingly lower compared to 2022. But, we believe that the energy giant’s fundamentals remain strong, which will likely pave the way for longer-term gains. The company has also improved its production and lowered costs since late 2022, which is a big win. Not to forget its meager debt-to-equity ratio (0.2x) which makes its balance sheet strong enough to withstand any further energy downturn. The last few months have featured two notable mergers and acquisitions on the upstream side of the energy sector. The company announced an all-stock merger with Permian Basin producer Pioneer Natural Resources for $59.5 billion.  This transaction will more than double Exxon’s footprint in the Permian Basin. XOM also made a move to enhance its lower-carbon oil business by agreeing to acquire Denbury Resources for almost $5 billion. The deal won’t add a lot of oil production (Denbury produces about 50,000 BOE/d) but it is expected to significantly enhance XOM’s carbon capture and utilization platform.  A company plan published by Exxon Mobil on Dec. 6 aims to double earnings by 2027, assuming Brent crude oil prices average $60 per barrel. Even if Brent crude oil reaches $35 per barrel, it said 90% of its upstream capital investments will be able to return 10% or more. That said, even mediocre oil prices have plenty of upside potential.

XOM stock has seen extremely strong gains of 150% from levels of $40 in early January 2021 to around $100 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. However, the increase in XOM stock has been far from consistent. Returns for the stock were 48% in 2021, 80% in 2022, and -9% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 25% in 2023 (YTD) – indicating that XOM underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Energy sector including CVX, COP, and PBR, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could XOM face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

In Q3, Exxon’s net income fell by more than half to $9.07 billion, or $2.25 per share, from $19.66 billion, or $4.68 per share, in the year-earlier quarter, while revenues fell 19% year-over-year (y-o-y) to $90.76 billion – driven by a nearly 60% decrease in natural gas realizations and a 14% decrease in crude realizations. Q3 worldwide Upstream earnings plunged 50% y-o-y to $6.12 billion, as U.S. Upstream earnings fell 49% to $1.56 billion and Non-U.S. Upstream dropped 51% to $4.56 billion. In addition, Q3 net production increased by ~80K barrels of oil equivalent/day, driven by Guyana and the Permian Basin, which provided a partial offset to lower crude and natural gas realizations and divestments compared with last year. Q3 worldwide Energy Products earnings tumbled 58% y-o-y to $2.44 billion, as U.S, Energy Products fell 55% to $1.35 billion and Non-U.S. Energy Products sank 61% to $1.08 billion, with the company quoting weaker industry refining margins and unfavorable foreign exchange impacts.

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We forecast XOM’s Revenues to be $357.6 billion for the fiscal year 2023, down 10% y-o-y. Looking at the bottom line, we now forecast EPS to come in at 9.08. Given the changes to our revenues and earnings forecast, we have revised our XOM’s Valuation to $109 per share, based on $9.08 expected EPS and a 12.1x P/E multiple for the fiscal year 2023 – almost 9% higher than the current market price. It should be noted that we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.

Exxon has made a final investment decision to develop their fifth and most expensive project on Guyana’s offshore Stabroek block (targeted for 2026 startup). The $12.7 billion Uaru project will produce around 250K barrels/day, costing 27% more than the previous project of equivalent size, reflecting rising costs. 

It is helpful to see how its peers stack up. Exxon Mobil Peers shows how XOM stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 XOM Return -2% -9% 11%
 S&P 500 Return 5% 25% 114%
 Trefis Reinforced Value Portfolio 9% 40% 616%

[1] Month-to-date and year-to-date as of 12/29/2023
[2] Cumulative total returns since the end of 2016

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