ExxonMobil stock is trading at a discount as oil prices rise

ExxonMobil (XOM) is the second-biggest energy company in the world after Saudi Aramco with a market cap of over $523 billion in market cap and over $338 billion in annual revenue. 

The company has a presence across the upstream, midstream, and downstream businesses. Its business organically and through buyouts. Its biggest buyout was Mobil Corporation in 1999 in a $81 billion deal. It also acquired XTO for $41 billion and Pioneer Natural Resources for almost $60 billion. 

Exxon has drilling locations in the United States, Canada, Guyana, Angola, Equatorial Guinea, Iraq, and Qatar.

The company’s stock has done well in the past few years, helped by the robust energy prices. Its revenue has soared from $178 billion in 2020 to over $340 billion in the trailing twelve months.

The stock has also risen because, unlike its European peers like Shell and BP, the company has not invested substantially in alternative energy sources like wind and solar. Instead, it has focused on carbon capture technology and oil and gas production.

ExxonMobil is also swimming in cash as its profitability booms. After sinking to a $22 billion loss in 2020, its annual profit jumped to $22 billion in 2021, $55.7 billion in 2022, and $36 billion in 2023. 

Exxon is also a dividend aristocrat that has increased its dividend for over 25 years and has a low payout ratio of 42%. The stock was trading at $117 and its HypeIndex data rose to 73%.

Positive hype

• ExxonMobil published strong financial results as its revenue soared to $89 billion in the second quarter, up from $80.7 billion a year earlier. This revenue growth was partially because of its Pioneer Natural Resources acquisition and record production in Permian and Guyana.

• Exxon’s profits also jumped to $9.2 billion in Q2 from the $8.22 billion it made in Q1 and the $7.88 billion in Q2’23. 

• The company also continued paying significant dividends and share buybacks. It paid $4.2 billion in dividends, making it the second-biggest payer in the S&P 500. Also, it repurchased shares worth $5.2 billion.

• Analysts are optimistic about Exxon’s future, with Q3 revenue expected to come in at $90.1 billion followed by $325 billion in 2024.

• The company could benefit from the robust oil prices. Brent, the global benchmark, rose to $81 while the West Texas Intermediate (WTI) rose to $76. The two prices have held steady above $70 this year, helped by OPEC+ cuts. 

• Oil prices could also remain steady if the crisis in the Middle East.

• ExxonMobil is fairly undervalued, trading at a price-to-earnings ratio of 13.50, lower than the S&P 500 average of 23.

Negative hype

• ExxonMobil is expected to have lower production in Guyana because of maintenance in the country.

• Its third-quarter earnings will be impacted by a tornado at the Joliet refinery. The impact will be between $200 million and $300 million. 

• Exxon has a lower dividend yield than other energy companies, especially those in the midstream industry like Energy Transfer, which has a 8% yield. 

Summary on ExxonMobil stock

ExxonMobil is a quality energy company with a long track record of growing its revenues and earnings, even in difficult market conditions. For example, its revenue rose to $301 billion in 2009 and $383 billion in 2010 at the height of the Global Financial Crisis (GFC). 

Its stock has remained above the 50-day and 100-day Exponential Moving Average (EMA), meaning that bulls are in control.

However, there are signs that it is forming a rising wedge pattern, which could lead to a retreat in the coming months. If this happens, the stock could retreat to $115. However, a move above the upper side of the wedge will point to more upside.

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