2018 is proving to be a year of fluctuations for this oil behemoth. The drop in oil prices has been taking Exxon Mobil (NYSE: XOM) stocks for a ride. The prices increased 11.02% from November 2017 to February 2018, before falling flat 15.92% within 20 days. The oil prices fell sharply during this period, taking along many oil stocks down with it, including Exxon. However, the sad development with Exxon was the low expected earnings report in Q4 2017 even when oil prices were rising during that period.
Disappointing Q4 Results
Exxon posted Q4 2017 earnings of $8.4bn. However, excluding the impairments of $3.7bn from US tax reform, the earnings were down 2% compared to Q4 2016. The EPS (excluding the effect of US tax reform) was 0.88$, less than the analyst estimates of $1.04. The oil-equivalent production fell 3%. Cash flow in the quarter was $8.8bn, while for the year it was $33.2bn.
In its earnings call, Exxon reported massive benefits from the tax reform; however, these benefits have a one-time impact and thus serious consideration needs to be given to the growth outlook. On January 30, 2018, it released its plans to invest more than $2bn in transportation expansion in its Permian basin, which would triple its daily oil production.
In 2014 and 2015, the stock prices fell about 30% due to a steep decline in oil prices. Similarly, in February 2018, it again fell 16% in a matter of 20 days due to the same reason. The stock prices are a witness to the volatility that is creeping in the market. The energy sector has dipped 10% and oil prices have seen levels below $60.
The weekly chart for February 2018 shows a stock price decline of 13%; thus becoming a poor performer in terms of mega-cap stocks. However, a close study of the 5-year stock chart reveals phases of a downfall with a successive phase of increase, which means that stocks have gradually increased after a fall.
For e.g. from July 2013 to October 2013, the stocks fell by 9.30%, but then it grew by 18% from October 2013 to January 2014. Similar trends can be observed during the period May 2015 – November 2015 – July 2016. A negative 19% followed by 32% positive increase. We can positively expect the same now and hence this may prove to be a good buying opportunity.
How does Exxon fare amongst other competitors?
In terms of Cash Flows and Capital Spending, Exxon and Shell are faring better than the other competitors. However, in terms of gross margins, Statoil and Total are doing better. Overall, Exxon has underperformed in comparison to Chevron and Total.
Being a Dividend aristocrat, Exxon has been performing well in terms of dividend payout. The Dividend history of Exxon is refreshing, as it has shown a 16% increase from 2013 to 2015 ($0.63 to $0.73). Even with the volatility in the oil market, the dividend has grown by 5% from 2016 to the beginning of 2018 where the dividend is $0.77. Even though the business performance was poor, the management has unveiled huge plans for improving its oil production capacity in the Permian Basin. Current shareholders can consider their Exxon stock as a reliable investment as the company now has a growth outlook in place due to a superior balance sheet and increased cash flows.