Exxon Mobil beat the odds. After being removed from the Dow Jones industrials index in August 2020 after 92 years, Exxon used a comeback in oil prices in 2022 as the catalyst to prove its worth. But has Exxon indeed reclaimed the throne of the energy industry? And have oil stocks already peaked? Or is Exxon — and oil — just getting started? For the answer, take a look at the Exxon stock chart.
Exxon shot up after beating third-quarter earnings estimates on Oct. 28. The oil giant had been advancing since the beginning of the year, first in response to rising oil prices and then as a reaction to Russia's attack on Ukraine. But as oil prices dipped below $100 a barrel, Exxon then led a charge to take the stock higher and show investors that its increased production, rising profitability, and a planned expansion of its refinery business was not just a fluke.
Exxon unveiled this month a new corporate plan that includes increasing its stock buybacks to $50 billion through 2024, increasing production and reducing greenhouse-gas emissions. Exxon said the plan should double earnings and cash flow potential by 2027 versus 2019 as a result of "high-return, low-cost-of-supply projects."
The company also said that by 2027, "upstream production is expected to grow by 500,000 oil-equivalent barrels per day to 4.2 million oil-equivalent barrels per day" with more than 50% of the total to come from the U.S. Permian Basin, Guyana, Brazil, and liquefied natural gas projects the company is investing in.
Will Exxon Lead A Resurging Energy Sector?
"We view our success as an 'and' equation, one in which we can produce the energy and products society needs and be a leader in reducing greenhouse gas emissions from our own operations and also those from other companies," Darren Woods, chief executive officer, said in a news release.
Energy made up just 2.5% of the S&P 500 in August 2000 when Exxon was removed from the Dow. Now energy makes up more than 5% of the S&P 500.
But Exxon's strategy could face obstacles.
President Joe Biden and other Democrats continue to lambaste Exxon and other Big Oil companies for sitting on their profits. A report this month by the U.S. House Oversight Committee said Big Oil has little intention to drop atmosphere-warming fuels for more solar, wind, hydrogen and other alternatives despite "greenwashing."
And Exxon filed a lawsuit this week against the European Union over the bloc's decision to impose a windfall levy on the high profits of energy companies triggered by Russia's invasion of Ukraine.
Questions also surround the price of oil in 2023. Analysts are estimating crude oil to average above $90 a barrel in 2023, whereas oil futures estimate the price to come down to the $70 range.
Can Demand For Oil Keep Increasing?
Woods told investors this month at The Wall Street Journal's CEO Council that global demand for oil and gas won't peak for decades and that policymakers need to focus on energy affordability and reliability, in addition to addressing climate change.
Woods said the company is not shifting its strategy to invest in renewable energy, as some of its European peers are, but will continue investing heavily in oil and gas projects while also reducing its own carbon emissions. "If the world needs oil and gas, which it does, who best to produce it," Woods said. "Our view is, as long as oil and gas is going to be needed ... we want to be the ones best positioned to provide that."
U.S. crude oil prices have fallen since peaking at about $130 on March 7. On Friday, crude oil prices were down to $78 a barrel.
And Chevron continues to battle Exxon for leadership of the energy industry, as do foreign oil giants such as Shell and BP.
Exxon Stock: Fundamental Analysis
Exxon reported that earnings soared 181% to $4.45 per share in Q3 as revenue jumped 52% to $112.1 billion. Capital and exploration expenditures came in at $5.7 billion in the third quarter. By the end of Q3, XOM had spent $15.2 billion, which the company says is on track with full-year guidance of $21 billion to $24 billion.
Oil-equivalent production in the third quarter was 3.7 million barrels per day, up more than 50,000 oil-equivalent barrels per day from Q2.
Exxon Mobil also announced a fourth-quarter dividend of 91 cents per share, an increase of 3 cents per share. The company said it plans to pay out $15 billion in aggregate for the year.
"The investments we've made, even through the pandemic, enabled us to increase production to address the needs of consumers," Woods said in announcing Q3 earnings. "Rigorous cost control and growth of higher-margin petroleum and chemical products also contributed to earnings and cash flow growth in the quarter."
Forecasts For Future Earnings
How will Exxon's earnings perform down the road? Analysts surveyed by FactSet expect Exxon to earn $3.32 a share in Q4 and for annual earnings to drop to $11.26 a share in 2023. Sales are expected to jump 15% from last year to $97.75 billion in Q4 but then are expected to dip to annual revenue of $423.58 billion in 2023.
John Kornitzer, co-manager of $503.9 million Buffalo Flexible Income Fund (BUFBX), told Investor's Business Daily last month the fund will decide around January or February whether to trim Exxon Mobil. The decision will be based on energy prices through this winter in Europe. It will also rest on political issues such as whether the energy sector elicits a heavy regulatory burden, Kornitzer says. The fund had 28% of shareholder money in energy sector stocks as of Sept. 30.
"Exxon's got a major field in Suriname off the coast of South America along with Hess," Kornitzer said. "Production in that field is going to keep rising for the next three, four, five years. They keep hitting more new wells."
Exxon Stock Technical Analysis
Exxon Mobil stock gained 0.5% Friday and was still within a flat base pattern with a 144.76 buy point, according to MarketSmith chart analysis. Exxon successfully completed a consolidation in October. Trading volume has been low this week due to the holidays. The stock is struggling to maintain support at its 50-day line, and is well above its 200-day line.
Many oil stocks have become extended, but over the past few months the oil industry has weeded out the stocks that were underperforming and settled on stocks that investors believe will survive in the long run. Exxon is one of those standout energy stocks.
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The relative strength line is still holding up, an encouraging sign.
XOM stock has a near-perfect Composite Rating of 98. XOM's EPS Rating is a mediocre 80, but that partly reflects a loss in 2020.
Improving earnings performance gives added credibility to a bullish outlook on Exxon Mobil stock.
Exxon built a huge cash flow and has reinvested that money in its refinery business and in shale deposits.
Ahead of earnings, Jefferies analyst Lloyd Byrne on Oct. 18 said Exxon has cut capital expenditures from its recent highs of $31 billion in 2019. "We continue to be positive on Exxon across its divisions, as we see strong but targeted upstream growth in high-value and low-cost projects," Byrne wrote. He added that he sees "higher exposure to downstream elements enabling the company to capitalize on higher mid-cycle refining margins, and an energy transition strategy that plays to its strengths."
Exxon's Expenditures: Reinvesting In The Business?
And last month, Exxon Mobil announced its exit from Russia after Moscow grabbed the company's stake in the Sakhalin-1 oil and gas venture. The oil giant, which has operated in Russia for more than 25 years, held a 30% interest in the project.
Last summer, Biden blamed oil companies for the rising price of gas and allocated $500 million for clean energy projects across mining lands in the U.S. Biden criticized Exxon for not increasing capital expenditures and accused it of keeping the oil supply low and gasoline prices high. Biden has also opened up the U.S. strategic oil reserves, adding supply to the market, in an effort to hold down gas prices.
The average price of gas across the U.S. on Friday was $3.17, after rocketing past $5 a gallon as the summer began, according to AAA data.
"We're going to make sure that everybody knows Exxon's profits," Biden told reporters during a visit to Los Angeles. "Exxon made more money than God this year."
Exxon's response: "Exxon Mobil has been investing more than any other company to develop U.S. oil and gas supplies. This includes investments in the U.S. of more than $50 billion over the past five years, resulting in an almost 50% increase in our U.S. production of oil during this period."
So far, no major analysts have downgraded or upgraded Exxon stock in the past couple months, although last month Morgan Stanley, Wells Fargo and JPMorgan increased their target price on the stock. All three companies maintained their buy rating on XOM.
The Future Of Exxon
Exxon also announced it made two more discoveries in July off the coast of Guyana, bringing the total to seven oil well discoveries in and around the site. "The Guyana investment strategy continues to yield positive results," Exxon said in a news release.
Earlier this year, the oil major also announced it would reorganize into three business units. Under the new structure, the chemicals and refining divisions have been combined into a single reporting segment to cut costs. The company also plans to relocate its headquarters from Irving, Texas, to Houston by mid-2023.
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Oil demand is shrinking in the long term as alternate energy sources take hold. Independent U.S. shale oil companies are scaling back their spending to keep their balance sheets on positive footing. That leaves the door open for oil majors to take market share.
Exxon has become a bigger shale player, increasing its holdings in the Permian Basin of Texas and New Mexico.
Big Oil Grapples With Climate Change
Rivals are also moving in to expand shale holdings. In July 2020, Chevron announced it was buying Houston-based oil and gas independent 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.
And in October 2020, ConocoPhillips agreed to buy Concho Resources in an all-stock deal valued at $9.7 billion. That created the biggest independent U.S. oil producer.
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Climate-change activists and investors have wanted Exxon to pledge to reduce its emissions to net zero by 2050.
Exxon has pledged to have net-zero carbon emissions from operations by 2050. But the pledge didn't include emissions from consumers using oil and other fossil fuels.
Last year, Chevron announced it would have net-zero emissions from its upstream operations by 2050. But it stopped short of pledging to hit net zero for all operations.
Is Exxon Stock A Buy?
Last year's stock action marked a step back for Exxon. The collapse of oil prices from 2014 to 2020 led to Exxon stock losing its status as a Dow Jones Industrial Average listing after 90 years. Exxon was replaced by Salesforce in August 2021.
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 and the iShares U.S. Energy ETF are two energy-related ETFs. But those ETFs are still exposed to crude oil price swings.
Exxon and Chevron are major weights in XLE.
Bottom line: Exxon stock is nearing another buy point right now of 114.76 from a flat base. Exxon has consistently outperformed a turbulent market and could recover from oil's recent lows. But it will require reinvesting in oil, carbon capture and alternative energies, and making sure it retains its leadership position.
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Follow Michael Molinski on Twitter @IMmolinski
