Exxon Mobil (XOM) has prioritized maintaining its dividend while oil prices remain low. Is Exxon stock a good buy? Take a look at Exxon earnings and the XOM stock chart.
Exxon Stock Fundamental Analysis
On Oct. 30, Exxon reported a loss of 18 cents per share in Q3 vs. a profit of 68 cents per share in the year-ago quarter. Wall Street was expecting a loss of 28 cents per share. Revenue fell 29% to $46.2 billion, falling short of Zacks Investment Research estimates for $49.5 billion.
Oil-equivalent production fell 3.7% to 3.7 million barrels per day. The upstream business lost $1.5 billion after earning $8.3 billion a year ago. Downstream income collapsed 91% to $134 million. Chemical income rose 34% to $1.27 billion.
The oil giant is maintaining its quarterly dividend at 87 cents a share. But to protect its payout, the company is cutting spending and jobs. Exxon sees 2021 capital program at $16 billion-$19 billion, down from the 2020 target of $23 billion. Exxon had already cut investment by $10 billion so far this year.
In December, Exxon slashed its five-year spending plan. The company now plans to spend $19 billion or less in 2021, and $20 billion-$25 billion a year between 2022 and 2025. That’s down from a prior forecast for an annual investment of $30 billion during the same period.
The company will also reduce its U.S. staff by 1,900 after announcing 1,600 in cuts to its European headcount earlier this month. Overall, it plans to eliminate about 14,000 positions.
Exxon is also looking at a “modest amount of assets sales” in 2021 and is “in active discussions” with “bids coming in,” said CFO Andrew Swiger said during the Q3 earnings call.
Looking ahead to Q4, Exxon confirmed it sees a write-down of $17 billion-$20 billion and said investments in certain natural-gas assets will stop.
Exxon earnings have fallen an average of 54% over the last three years, according to IBD’s Stock Checkup. On the revenue side, Exxon’s three-year growth rate has fallen 4%. Investors generally should look for stocks with sustained earnings and sales growth of at least 25%.
Exxon stock does offer a strong 9.6% dividend yield. But that’s been rising in part because shares have trended lower for the past five years. A high dividend yield is a poor reward for a falling stock price.
Meanwhile, doubts are growing on Wall Street that Exxon can maintain its current dividend, even with the latest spending cuts. On Dec. 1, analysts at JPMorgan said a dividend cut is still possible in early 2021, interpreting Exxon’s pledge to “maintain a reliable dividend” as falling short of promise to keep it at the current level.
Exxon Stock Technical Analysis
Exxon earnings — and XOM stock — tend to rise and fall with crude oil prices, which can be highly volatile.
March saw the biggest drop in oil prices since the start of the 1991 Gulf War as OPEC+ failed to reach a deal on output cuts. But the group eventually came together as the coronavirus pandemic slammed prices further. April even saw U.S. crude go negative for the first time ever.
Meanwhile, global demand cratered. The International Energy Agency now sees the first annual demand drop since 2009. The IEA predicted a drop of 8.8 million bpd this year in its November oil market report, a stunning reversal from its January outlook of an increase of 1.2 million bpd.
With Covid-19 cases rising in Europe and the U.S., OPEC and top nonmember producers backed a modest output boost. The coronavirus vaccines on the horizon add hope but also uncertainty to oil markets. Saudi Oil Minister Prince Abdulaziz bin Salman said “it is a bit of an unknown” on how many people will take the vaccine.
In late March, XOM stock hit its lowest level since 2004. Shares popped above their 50-day average in mid-November after Pfizer (PFE) announced its Covid-19 vaccine was 90% effective in recent tests. Shares retook their 200-day average in late November for the first time since July 2019, according to MarketSmith chart analysis.
The relative strength line, which tracks a stock vs. the S&P 500 index, has been lagging since 2011 and is just above record record lows.
The stock took another hit after it was replaced by Salesforce (CRM) on the Dow Jones Industrial Average in August, after over 90 years on the key index. The Dow Jones has shifted away from industrial stocks and towards technology firms in recent years.
Still, analysts predict limited downside for XOM stock due to the index change longer term, as it is not widely used as an investing benchmark, unlike the S&P 500.
“Removing ExxonMobil from the DJIA, which had been on the list since 1928, is symbolic of just how far the energy sector has fallen over the past several years,” said Edward Jones analyst Jennifer Rowland in a note Aug. 25.
“Going forward, Chevron will be the only energy stock on the DJIA. In the S&P 500, there are 5 stocks (Apple, Microsoft, Amazon, Alphabet and Facebook) that are individually larger than the entire US energy sector – that’s pretty sobering.”
Chevron (CVX) even topped Exxon in market capitalization briefly during trade in early October. But Exxon has since regained its title of largest U.S. oil company.
Exxon stock has woeful IBD Composite Rating of 2 out of 99 and a poor 8 EPS Rating.
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 (XLE) and iShares U.S. Energy ETF (IYE) are two energy-related ETFs. But those ETFs are still exposed to crude oil price swings.
Exxon Mobil Shale Investments
As demand shrinks, independent U.S. shale companies are scaling back spending to stay within their balance sheets, leaving the door open for oil majors.
Exxon became a bigger shale player with a $5.6 billion deal in 2017 to double its oil and gas holdings in the Permian Basin.
Before the pandemic, Exxon announced plans last year to produce 1 million barrels per day in the Permian Basin as early as 2024, an 80% jump from prior estimates. But Exxon said in October that it plans to end the year with just 10 rigs in the Permian down from 50-60 rigs before the start of the coronavirus pandemic.
Exxon is in the midst of asset sales that could reach $25 billion through 2025, across Europe, Africa and Asia as it looks to free up more capital to invest in the Permian Basin and massive projects like an oil field in Guyana.
Rivals are moving in to expand shale holdings. In July, Chevron announced it was buying oil and gas 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.
Exxon Stock Is Not A Buy
Exxon stock has been in a prolonged downward trend. Also, there is no indication of any pattern forming, much less valid buy points.
The former Dow Jones component also has a very weak long-term RS line.
Exxon earnings are volatile and should continue to be under pressure as the coronavirus depresses demand. XOM stock also swings with crude oil prices. That can mean rapid short-term gains but also abrupt sell-offs like what was seen following the March OPEC meeting.
Bottom line: Exxon stock is not a buy.
Follow Gillian Rich on Twitter @IBD_GRich for energy news and more.
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