Is Exxon Mobil A Buy After Q4 Earnings?

Shares of Exxon Mobil (XOM) had been advancing since the beginning of the year, first in response to rising oil prices and then as a reaction to Russia’s attack on Ukraine. And after a five-week dip in oil stocks in June and early July, Exxon stock has made a comeback and is building a base as the conflict in Ukraine rages on.

As Exxon prepares to announce its Q3 earnings, should you hold or buy the stock now on an anticipated recovery, expected profitability and a planned expansion of its refinery business? For the answer, take a look at the Exxon stock chart.

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Rising inflation and Russia’s invasion had sent oil prices higher, as the West turned away from Russian supply and the markets worried about shipping disruptions.

But U.S. crude oil prices have fallen since peaking at about $130 on March 7. On Monday, oil prices hovered at around $85 a barrel, near their lowest level since January.

That comes despite the fact that Russian President Vladimir Putin threatened to use nuclear weapons in his attack on Ukraine and after Kyiv reconquered some lands from Russia over the past few weeks.

Meanwhile, Exxon reported its operating profit could come in at around $11 billion in the third quarter, according to federal filings made earlier this month. That would be up sharply from $6.7 billion a year earlier, but a significant drop from the record $17.6 billion in operating profit from Q2.

Many oil stocks have become extended, but over the past few months the oil industry has weeded out the stocks that were underperforming and settled on stocks that investors believe will survive in the long run. Expected earnings on most energy stocks in the third quarter are projected to outshine those of all other stocks. Exxon is one of those standout energy stocks.

Exxon broke through a 105.67 buy point from an undefined consolidation to a new all-time high on Monday, according to MarketSmith chart analysis.

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Exxon Stock: Fundamental Analysis

Exxon built a huge cash flow and has reinvested that money in its refinery business and in shale deposits. And it increased its annual dividend to $15 billion, or $3.52 per share. Exxon is in a prime spot to give money back to shareholders now and in the future.

Wall Street again upped its estimates for XOM’s third-quarter to include earnings per share of $3.80, but dropped estimates on revenue to $104.6 billion, according to FactSet. Exxon is scheduled to announce Q3 earnings this Friday.

The company earned $4.14 billion in the second quarter on sales of $115.7 billion, easily beating Wall Street’s forecasts. Earnings soared 276% over the same period a year ago, and sales increased 70%.

The company says the Q2 sales and profit increases were driven by a tight supply and high demand for oil, natural gas and refined products. This has increased both natural gas realizations and refining margins to well above the 10-year range, Exxon Mobil reported.

And last week, Exxon Mobil announced its exit from Russia after Moscow grabbed the company’s stake in the Sakhalin-1 oil and gas venture. The oil giant, which has operated in Russia for more than 25 years, held a 30% interest in the project.

This summer, President Joe 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. Biden 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 gas prices.

The average price of gas across the U.S. on Monday was $3.79, after rocketing past $5 a gallon as the summer began, according to AAA data.

The Future Of Exxon

“We’re going to make sure that everybody knows Exxon’s profits,” Biden told reporters during a visit to Los Angeles. “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 this month Morgan Stanley, Wells Fargo and JP Morgan increased their target price on the stock. All three companies maintained their buy rating on XOM.

Morgan Stanley analyst Devin McDermott estimates that the company may generate $50 billion of free cash flow this year after capital expenditures. That is more than sufficient to cover annual dividends plus $15 billion of anticipated stock repurchases, he said in a note to investors in June.

Exxon has been investing in its refining business, including projects in the Netherlands and Texas, when “many in the industry constrained investment,” McDermott said.

“As the world’s largest refiner & marketer of petroleum products, XOM is an outsize beneficiary relative to integrated peers,” he wrote.

Goldman Sachs said: “Given the strong cash generation, we expect a number of (oil) companies to announce continued progress around capital returns, and are focused on any additional commentary on mitigating cost pressures.”

Exxon also announced it made two more 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 news release.

Earlier this year, the oil major also announced it would reorganize into three business units. Under the new structure, the chemicals and refining divisions have been combined into a single reporting segment to cut costs. The company also plans to relocate its headquarters from Irving, Texas, to Houston by mid-2023.

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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 of Texas and New Mexico.

Exxon Stock Technical Analysis

On May 4, Exxon stock managed to break above a cup-with-handle buy point of 89.90, according to MarketSmith analysis. It finally hit a peak of 105.57 on June 8 before falling back as the price of crude oil dropped.

It was consolidating until it broke through a 105.67 buy point to a new all-time high on Monday.

The trading volume in the breakout was moderate but the stock has climbed over the past three weeks, crossing above its 50-day moving average and its 21-day exponential moving average. It is well above its 200-day line.

The relative strength line is still holding up, an encouraging sign.

XOM stock has a perfect Composite Rating of 99. XOM’s EPS Rating is a mediocre 80, but that partly reflects a loss in 2020.

Improving earnings performance gives added credibility to a bullish outlook on Exxon Mobil stock. And analysts had expected the price of a barrel of oil to skyrocket to as high as $200.

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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 (COP) agreed to buy Concho Resources in an all-stock deal valued at $9.7 billion. That created the biggest independent U.S. oil producer.

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Climate-change activists and investors have wanted Exxon to pledge to reduce its emissions to net zero by 2050.

On Jan. 18, Exxon 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.

Last year, Chevron (CVX) 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.

Is Exxon Stock A Buy?

Last year’s stock action marked a step back for Exxon. The collapse of oil prices from 2014 to 2020 led to Exxon stock losing its status as a Dow Jones Industrial Average listing after 90 years. Exxon was replaced by Salesforce (CRM) in August 2021.

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 the iShares U.S. Energy ETF (IYE) 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: Exxon stock is a buy right now after crossing a buy point of 105.67. It could go higher, especially if it reports strong Q3 earnings. Exxon has consistently outperformed a turbulent market and could recover from its recent lows. But if Q3 earnings disappoint, the stock could drop lower, so it might be a good idea to wait until after its earnings to pull the trigger on Exxon.

Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.

Follow Michael Molinski on Twitter @IMmolinski

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