After a 6% decline over the last six months, at the current price of around $103 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 $103 in the last six months, as oil prices have been surprisingly lower than expected this year. Crude oil is trading in the low $70s, down double-digits from the beginning of the year. Having said that, the short-term trend for oil will depend upon the level of market angst. 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 been able to improve its production and lower the costs since late 2022, which is a big win. Not to forget its very low debt-to-equity ratio (0.2x) which makes its balance sheet strong to withstand any further energy downturn. Also, we believe that rebounding demand and tight supplies can lead to higher oil prices by the end of the year.
In Q1, Exxon’s net income more than doubled to $11.4 billion, or $2.79 per share, from $5.5 billion, or $1.28 per share, in the year-earlier. However, its revenues fell 4% year-over-year (y-o-y) to $86.6 billion, as lower crude oil and natural gas realizations dented results. The bottom-line difference was partly related to higher costs in the year-ago period and a one-time charge. Also helping things along in the first quarter of 2023 was a y-o-y increase in production. While the earnings have improved a lot from the first quarter of 2022, it still continues to be in a declining trend since Q3 2022 – due to falling energy prices. The energy giant revised its guidance for the just-completed second quarter (ended June 30) downward. Its profits could drop to as low as $6.2 billion for the period. The main reason here is the downward trend in natural gas prices. Exxon’s earnings per share totaled $4.45 in Q3 2022, then dropped to $3.40 in Q4 2022, and as already noted, settled to $2.79 in the Q1 2023. By the look of things, this trend will continue into the second quarter as well.
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 $115 per share, based on $9.08 expected EPS and a 12.7x P/E multiple for the fiscal year 2023 – almost 12% 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 barrel/day and cost 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.
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