Exxon Mobil beat the odds. After being removed from the Dow Jones Industrial Average in August 2020 after 92 years, the stock used a comeback in oil prices in 2022 as the catalyst to prove its worth. But has XOM stock reclaimed the throne of the energy industry? And have oil stocks already peaked? Or is Exxon Mobil just getting started?
XOM stock hit an all-time high 119.63 on Friday.
The stock is in a 5% buy zone after breaking out of a base Jan. 26, after Russia announced it would cut its oil output by 500,000 barrels a day next month. The news sent crude prices higher.
Crude Oil Prices Lift XOM Stock
Oil prices also received a boost from China inflation data that showed consumer prices rose in January, a sign that the country's reopening economy is gaining strength. In addition, on Monday the world's top oil exporter, Saudi Arabia, raised its crude prices for Asian markets for the first time in six months.
U.S. crude oil prices spiked in March 2022 with a second rally in June, and hit a low in December. Analysts estimate crude oil will average above $90 a barrel in 2023. So far this year, crude has been in the $70 to $80 range.
The oil giant's XOM stock started advancing in the beginning of 2022, first in response to rising oil prices and then as a reaction to Russia's attack on Ukraine. But as oil prices receded back below $100 a barrel in July 2022, Exxon Mobil led a charge from September lows to show investors that its increased production, rising profitability, and a planned expansion of its refinery business was not just a fluke.
Exxon said the plan should double earnings and cash flow potential by 2027 from 2019 levels as a result of "high-return, low-cost-of-supply projects."
The company also said that by 2027, upstream production is expected to grow by 500,000 oil-equivalent barrels per day to 4.2 million oil-equivalent barrels per day. More than 50% of the total is to come from the U.S. Permian Basin in Texas and New Mexico, Guyana, Brazil, and liquefied natural gas projects the company is investing in.
Exxon paid $30 billion in dividends and buybacks in 2022. The company said in late January it would repurchase up to $35 billion of XOM stock shares through 2024.
Will Exxon Lead A Resurging Energy Sector?
"We view our success as an 'and' equation, one in which we can produce the energy and products society needs and be a leader in reducing greenhouse gas emissions from our own operations and also those from other companies," Darren Woods, chief executive, said in a December news release.
Energy made up just 2.5% of the S&P 500 in August 2020, when Exxon was removed from the Dow. Now energy makes up almost 5% of the S&P 500.
But Exxon's strategy faces obstacles.
President Joe Biden and other Democrats continue to lambaste Big Oil companies for sitting on their profits. A report from November by the U.S. House Oversight Committee said Big Oil has little intention to drop atmosphere-warming fuels for more solar, wind, hydrogen and other alternatives but is instead attempting to "greenwash." Greenwashing is when a company deceives people by marketing that they are more environmentally conscious than they actually are.
Biden attacked oil giants in last week's State of the Union address, saying their 2022 profit numbers were "outrageous" and criticizing their stock buybacks. He said they did too little, too late to reduce high energy prices, as oil hit over $100 per barrel in the summer of 2022.
And Chevron continues to battle Exxon Mobil for leadership of the energy industry, as do foreign oil giants such as Shell and BP.
Exxon Stock: Fundamental Analysis
The company on Jan. 31 reported better-than-expected Q4 earnings per share, but missed sales estimates. It earned $3.40 per share.
The oil giant is one of one of America's most profitable companies.
Exxon reported record profits of $55.7 billion for full-year 2022, up from $32.7 billion in 2021, and its highest revenue since 2013.
The Permian Basin delivered record production of more than 560,000 oil-equivalent barrels per day. Exxon Mobil increased year-over-year Guyana and Permian production by over 30% last year.
Capital and exploration expenditures increased to $22.7 billion in 2022 from $16.6 billion in 2021.
XOM stock has an 89 Composite Rating. Its EPS Rating is a mediocre 77, and partly reflects a loss in 2020. The company pays a 3.1% annualized dividend yield to investors.
XOM Stock Technical Analysis
Exxon Mobil earns an an impressive 93 Relative Strength Rating, meaning it outperformed 93% of stocks in the IBD database in the last 12 months.
It is in the buy zone of a flat base from the 114.76 buy point, according to MarketSmith pattern recognition. Shares are back above the 21-day exponential moving average, where it found support.
Exxon's Expenditures: Reinvesting In The Business?
The company built a huge cash flow and has reinvested that money in its refinery business and in shale deposits.
Last summer, Biden blamed oil companies for the rising price of gas and allocated $500 million for clean energy projects across mining lands in the U.S. The president also criticized Exxon for not increasing capital expenditures and accused it of keeping the oil supply low and gasoline prices high. Biden has also opened up the U.S. strategic oil reserves, adding supply to the market, in an effort to hold down gasoline prices.
The average price of gas across the U.S. on Monday was $3.42, after rocketing past $5 a gallon in the summer of 2022, according to AAA data.
"We're going to make sure that everybody knows Exxon's profits," Biden told reporters during a visit to Los Angeles in June. "Exxon made more money than God this year."
Exxon's response: "Exxon Mobil has been investing more than any other company to develop U.S. oil and gas supplies. This includes investments in the U.S. of more than $50 billion over the past five years, resulting in an almost 50% increase in our U.S. production of oil during this period."
So far, no major analysts have downgraded or upgraded Exxon stock in the past couple months, although Cowen, Goldman Sachs, Wells Fargo, BofA Securities and Truist Securities recently increased their target price on the stock.
The Future Of Exxon
Exxon also made two more oil deposit discoveries in July off the coast of Guyana, bringing the total to seven oil well discoveries in and around the site. "The Guyana investment strategy continues to yield positive results," Exxon said.
In a Feb. 9 memo, the oil company said it is ready to start a reorganization that splits Exxon Mobil into three businesses to cut costs. The new businesses are Global Business Solutions, Exxon Mobil Supply Chain and Global Trading.
Under the new structure, the business solutions group will consist of smaller business units including financial services, procurement and customer service. The supply-chain group will include logistics and materials management. Both divisions become effective May 1. The global trading business will include freight trading and raw materials, and becomes effective by the end of the year.
The plan proposes to save $9 billion in annual costs by the end of 2023, compared with 2019 levels.
Moving To New HQ Site This Year
The company also plans to relocate its headquarters from Irving, Texas, to Houston by mid-2023.
Oil demand is shrinking in the long term as alternate energy sources take hold. Independent U.S. shale oil companies are scaling back their spending to keep their balance sheets on positive footing. That leaves the door open for oil majors to take market share.
Exxon has become a bigger shale player, increasing its holdings in the Permian Basin and lifting XOM stock.
Rivals are also moving in to expand shale holdings. In July 2020, Chevron announced it was buying Houston-based oil and gas independent 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 2020, ConocoPhillips agreed to buy Concho Resources in an all-stock deal valued at $9.7 billion. That created the biggest independent U.S. oil producer.
Big Oil Grapples With Climate Change
Exxon has pledged to have net-zero carbon emissions from operations by 2050. But the pledge didn't include emissions from consumers using oil and other fossil fuels.
In 2021, Chevron announced it would have net-zero emissions from its upstream operations by 2050. But it stopped short of pledging to hit net zero for all operations.
In December Exxon started one of the largest recycling facilities in North America, able to process more than 80 million pounds of plastic waste per year.
Is Exxon's XOM Stock A Buy?
As with other oil stocks, Exxon 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.
Mutual funds have been adding the oil stock, with 3,240 owning shares in December, up from 3,065 in September. The CAN SLIM investing strategy looks for increasing institutional ownership for conviction.
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 and the iShares U.S. Energy ETF are two energy-related ETFs. But those ETFs are still exposed to crude oil price swings.
Exxon and Chevron are major weights in XLE.
Bottom line: XOM stock is in a buy zone and near a 52-week high. Exxon has consistently outperformed a turbulent market. But it will require reinvesting in oil, carbon capture and alternative energies, to make sure it retains its leadership position.
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