Leading integrated oil and gas company Exxon Mobil Corporation (XOM) just released its first-quarter fiscal 2024 results. This article outlines why it might be prudent to exercise patience for a more opportune entry point in the stock.
Analysts expected falling natural gas prices and refining margins to impact XOM this quarter. The company's earnings stood at $8.22 billion, equivalent to $2.06 per share, slightly below the estimated earnings per share of $2.20. Nonetheless, reported revenue closely aligned with analyst expectations, totaling $78.35 billion.
Focusing on its segments, the Upstream segment saw earnings decline to $5.70 billion due to lower natural gas prices and divestments, while the Energy Products segment earned $1.40 billion amid weaker refining margins. Conversely, the Chemical Products segment thrived, with earnings reaching $785 million due to increased margins and volume growth in performance chemicals.
Looking at the energy sector, crude prices rose slightly in the first quarter this year, notably breaking $80 in mid-March due to geopolitical tensions. However, natural gas prices dropped by about 20% year-over-year. This, along with lower refining margins from early 2023 highs, poses challenges for the energy sector. Further, the US gas market's oversupply worsens the situation, especially with strong WTI pricing affecting US gas producers.
XOM's stock has shown impressive growth, gaining 21.4% in price year-to-date and 18.8% over the past three months. The stock closed the last trading session at $121.33, hovering close to its 52-week high of $123.75.
Now, let us discover the influential factors shaping XOM's performance in the months ahead:
Boosting Growth in Guyana's Offshore Sector
XOM recently announced the approval of its Whiptail project off Guyana's coast. This significant development is projected to add 250,000 barrels per day by 2027, demonstrating XOM's commitment to growth and community development. With a budget of $12.70 billion, this project underscores the potential for future success and collaboration with Guyana.
Grim Financials
In the fiscal fourth quarter ended March 31, 2024, XOM’s total revenues and other income decreased 4% year-over-year to $83.08 billion. Its non-GAAP earnings, excluding identified items, fell 29.2% over the prior-year quarter to $8.22 billion. Also, its non-GAAP earnings, excluding identified items per common share, stood at $2.06, representing a decline of 27.2% year-over-year.
Moreover, as of March 31, 2024, XOM’s total current liabilities came in at $71.92 billion, compared to $65.32 billion as of December 31, 2024.
Uncertain Analyst Estimates
While Street expects XOM’S EPS to decline 3.9% year-over-year to $9.15, its revenue is likely to rise 1.2% from the previous year to $348.64 billion in the fiscal year 2024.
Looking further, for fiscal year 2025, its EPS is expected to rise 3.3% year-over-year to $9.45, but its revenue is projected to fall 4.2% year-over-year to $334.08 billion.
High Profitability
In terms of the trailing-12-month levered FCF margin, XOM’s 7.62% is 15.9% higher than the 6.57% industry average. Its 18.01% trailing-12-month ROTC and ROTA of 12.42% and 9.57% are 49.9% and 44% higher than the 8.29% and 6.64% industry averages.
Furthermore, the stock’s 0.91x trailing-12-month asset turnover ratio is 75.6% higher than the industry average of 0.52x.
Mixed Valuation
In terms of forward EV/EBITDA, XOM’s 6.76x is 15.5% higher than the 5.86x industry average. Its 8.65x forward Price/Cash flow is 61.6% higher than the industry average of 5.35x.
However, the stock’s forward EV/S multiple of 1.44 is 26.6% lower than the 1.97 industry average. Its forward P/S multiple of 1.37 is 7.6% lower than the industry average of 1.49.
POWR Ratings Reflect Uncertainty
XOM has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. XOM’s 0.96 beta justifies its C grade for Stability.
It also has a C grade for Sentiment, which is in sync with its uncertain analyst estimates.
XOM is ranked #34 out of 82 stocks in the C-rated Energy – Oil & Gas industry.
Click here to access XOM’s Growth, Momentum, and Quality ratings.
Bottom Line
Oil companies' profitability sharply increased last year due to surging demand and supply constraints triggered by the Ukraine-Russia conflict. While political instabilities should bode well for the energy sector this year as well, falling natural gas prices and refining margins could present obstacles in the sector.
Despite XOM's strong profitability metrics, its poor financial results in the first quarter and mixed valuations warrant a cautious approach. Given the prevailing uncertainties, it might be prudent to wait for a more favorable entry point in the stock.
How Does Exxon Mobil Corporation (XOM) Stack Up Against Its Peers?
While XOM’s overall POWR Rating of C, which equates to a Neutral rating, reflects uncertainties ahead, you may check out the stocks within the Energy – Oil & Gas industry possessing an A (Strong Buy) and B (Buy) rating:
Adams Resources & Energy, Inc. (AE)
Secure Energy Services Inc. (SECYF)
PrimeEnergy Resources Corporation (PNRG)
To access more Buy-rated Energy – Oil & Gas stocks that are set to outperform, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
XOM shares fell $2.13 (-1.76%) in premarket trading Friday. Year-to-date, XOM has gained 22.48%, versus a 6.26% 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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