Energy stocks have been experiencing a decline due to falling crude oil prices and concerns about the global economy this year. These factors have been dampening investor confidence.
Amidst the volatilities in the energy market, I think momentum is not on the rise for prominent oil company Exxon Mobil Corporation (XOM), as it is currently trading below its 50-day and 200-day moving averages. So, the stock might be best kept on hold for now.
The U.S. Energy Information Administration (EIA) has lowered its forecast for 2023 U.S. crude oil production by 50,000 barrels per day due to extended output cuts by OPEC and its allies.
The EIA expects a rise of 670,000 barrels per day in crude oil production this year, lower than the previous forecast. The production cuts are anticipated to reduce global oil inventories and drive oil prices up in late 2023 and early 2024.
However, the stock has plunged 3.6% over the past month. Shares of XOM have gained 19.9% over the past year to close the last trading session at $101.38.
Here’s what could shape XOM’s performance in the near term:
Positive Recent Developments
On July 13, 2023, XOM announced it had entered into a definitive agreement to acquire Denbury Inc. (DEN), an experienced developer of carbon capture, utilization, and storage (CCS) solutions and enhanced oil recovery.
The acquisition is an all-stock transaction valued at $4.90 billion, or $89.45 per share, based on XOM’s closing price on July 12, 2023. Under the terms of the agreement, Denbury shareholders will receive 0.84 shares of XOM for each Denbury share. The transaction synergies are expected to drive strong growth and returns for XOM.
On April 27, XOM made a final investment decision to proceed with the Uaru development offshore Guyana, following necessary government approvals. Uaru, which is the fifth Stabroek block development, is anticipated to achieve a daily production capacity of approximately 250,000 barrels upon its targeted startup in 2026.
These investments in Guyana and the company's exceptional track record of successful development continue to contribute to the stability of global energy supplies.
Mixed Financials
For the first quarter that ended March 31, 2022, XOM’s sales and operating revenue decreased 4.7% year-over-year to $83.64 billion, and its total revenue and other income declined 4.3% from the year-ago quarter to $86.56 billion.
However, the company’s non-GAAP net earnings and non-GAAP earnings per share increased 31.5% and 36.7% to $11.62 billion and $2.13, respectively.
Unfavorable Analyst Estimates
Street expects XOM’s revenue to decrease 18.9% year-over-year to $93.78 billion for the fiscal second quarter that ended June 2023. Its EPS is expected to fall 49.6% year-over-year to $2.09 in the same quarter.
Moreover, analysts expect XOM’s revenue and EPS for the fiscal year 2023 to decrease 12.1% and 35% year-over-year to $363.64 billion and $9.14, respectively.
Mixed Profitability
XOM’s trailing-12-month EBIT and EBITDA margins of 19.32% and 23.81% are lower than the industry averages of 25.54% and 39.12%.
However, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 33.54%, 20.39%, and 16.70% are higher than the industry averages of 23.48%, 11.21%, and 8.87%, respectively.
Elevated Valuation
XOM’s forward non-GAAP P/E of 10.79x is 15.2% higher than the industry average of 9.37x.
Furthermore, the stock’s forward Price/Book multiple of 2.03 is 34.6% higher than the industry average of 1.50, and its forward Price/Cash flow of 7.08x is 57.2% higher than the industry average of 4.51x.
POWR Ratings Reflect Uncertainty
XOM has a rating of C, translating to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. XOM has a C grade for Growth, in sync with its mixed financial performance. Its C in Stability is consistent with its 60-month beta of 1.08.
The stock also has a D grade for Value, justified by its premium valuation multiples.
XOM is ranked #37 among 89 stocks in the C-rated Energy – Oil & Gas industry.
Click here to access XOM’s Growth, Quality, Momentum, and Sentiment grades.
Bottom Line
The volatile nature of crude oil prices and uncertainties surrounding the global economic outlook has contributed to the weakening performance of energy stocks in the market.
Moreover, XOM is currently trading below its 50-day and 200-day moving averages of $105.42 and $108.41, indicating a downtrend. Like many energy stocks, XOM has experienced a decline in momentum attributed to falling crude oil prices and concerns about the global economy this year.
Given XOM’s mixed financials, unfavorable analyst expectations, stretched valuation, and mixed beta, I think the momentum is not on the rise for this stock.
Hence, it could be wise for investors to wait for a better entry point in this stock.
Stocks to Consider Instead of Exxon Mobil Corporation (XOM)
Given its uncertain short-term prospects, the odds of XOM outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A-rated (Strong Buy) or B-rated (Buy) stocks from the Energy – Oil & Gas industry instead:
Cheniere Energy Inc. (LNG)
Weatherford International PLC (WFRD)
Unit Corp. (UNTC).
What To Do Next?
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XOM shares were trading at $102.01 per share on Tuesday morning, up $0.63 (+0.62%). Year-to-date, XOM has declined -6.00%, versus a 19.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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