Exxon Mobil (XOM) reported Q1 earnings and revenue that topped Wall Street estimates on April 30 amid rising oil demand. Is Exxon stock a good buy? Take a look at Exxon earnings and the XOM stock chart.
Exxon reported Q1 EPS of 65 cents on revenue of $59.15 billion, beating analyst expectations. Operating cash flow jumped 48% to $9.3 billion while drove a debt reduction of more than $4 billion.
Exxon maintained its 2021 capital spending program at $16 billion-$19 billion. In addition to $3 billion in cost cuts in 2020, the company is on pace to achieve $3 billion in more cuts through 2023.
“Cash flow from operating activities during the quarter fully covered the dividend and capital investments, and we strengthened the balance sheet by reducing debt,” said Chairman and CEO Darren Woods.
Exxon Stock Fundamental Analysis
Exxon has remained committed to its dividend even amid pressures during the Covid-19 pandemic, slashing spending and jobs to protect the payout.
In December, Exxon slashed its five-year spending plan. The company now plans to spend $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.
Exxon earnings have stagnated at 0% over the last three years, according to IBD’s Stock Checkup. On the revenue side, Exxon’s three-year growth rate has fallen 13%. Investors generally should look for stocks with sustained earnings and sales growth of at least 25%.
Exxon stock does offer a strong 6.1% 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.
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Exxon Stock Technical Analysis
Exxon earnings — and XOM stock — tend to rise and fall with crude oil prices, which can be highly volatile. April 2020 even saw U.S. crude go negative for the first time ever.
Exxon 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.
Chevron 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.
Meanwhile, global demand cratered. The International Energy Agency saw annual demand drop by 8.8 million bpd in 2020, the first since 2009. That was a stunning reversal from its January outlook of an increase of 1.2 million bpd. The IEA sees 2021 oil demand rising by 6.2% or 5.5 million bpd.
OPEC+ began increasing its production quotas in January as demand rose with the coronavirus vaccine rollout. The group then continued loosening its output curbs in May even as Covid-19 rates soared in India, a major energy market.
XOM stock popped above the 50-day average in mid-November after Pfizer (PFE) announced its Covid-19 vaccine was 90% effective in recent tests.
Shares are now consolidating in a flat base with a 62.65 entry point, according to MarketSmith chart analysis.
The relative strength line, which tracks a stock vs. the S&P 500 index, has been trending higher since hitting record lows in the fall.
Exxon stock has a weak IBD Composite Rating of 56 out of 99 and a poor 31 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.
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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.
But the company has since scaled back plans there due to the coronavirus shock. Exxon now sees 7-10 active rigs in the Permian this year, down from 10-12 at the end of 2020 and down from 50-60 rigs before the start of the 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.
And in October, ConocoPhillips (COP) agreed to buy Concho Resources (CXO) in an all-stock deal valued at $9.7 billion, creating the biggest independent U.S. oil producer.
But a potential blockbuster merger could be possible. Exxon and Chevron executives were in preliminary talks for a merger in the early days of the Covid-19 pandemic, sources told the Wall Street Journal. The talks aren’t currently ongoing, but the sources told the Journal the discussions could be revisited in the future.
Shale stocks are also merging. Pioneer Natural Resources (PXD) reached a deal in October to buy Parsley Energy (PE) for $4.5 billion in stock.
Meanwhile, rival oil majors like BP (BP) and Royal Dutch Shell (RDSA) are making large cuts and shifting away from fossil fuels.
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Exxon Stock Is Not A Buy
Exxon stock is forming a flat base but is not in buy range. Meanwhile, earnings are volatile and will continue to be under pressure as the coronavirus surge in India, Brazil and Japan could drag on demand. XOM stock also swings with crude oil prices.
Bottom line: Exxon stock is not a buy yet.
Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
Follow Gillian Rich on Twitter for energy news and more.
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