Exxon Mobil (NYSE: XOM), a leading explorer, producer, transporter, and seller of crude oil and natural gas, and North America’s largest energy company by market cap, is scheduled to announce its fiscal second-quarter results on Friday, July 28. We expect Exxon Mobil stock to likely trade higher with revenue and earnings both beating market expectations marginally. Oil prices have been surprisingly lower than expected at the beginning of the year. However, oil prices have jumped over the last fortnight – boosted by a falling U.S. dollar and supply cuts by the world’s biggest oil exporters (Saudi Arabia and Russia). Having said that, the short-term trend for oil will depend upon the level of market angst. But, we believe that the energy giant’s fundamentals remain strong, which will likely pave the way for longer-term gains. The company has also been able to improve its production and lower the costs since late 2022, which is a big win. Not to forget its very low debt-to-equity ratio (0.2x) which makes its balance sheet strong to withstand any further energy downturn. Also, we believe that rebounding demand and tight supplies can lead to higher oil prices by the end of the year.
Our forecast indicates that Exxon Mobil’s valuation is around $115 per share, which is 9% higher than the current market price. Look at our interactive dashboard analysis on Exxon Mobil Earnings Preview: What To Expect in Q2? for more details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Exxon Mobil’s Q2 2023 revenues to be around $74.7 Bil, slightly ahead of the consensus estimate. In Q1, XOM’s revenue fell 4% year-over-year (y-o-y) to $86.6 billion, as lower crude oil and natural gas realizations dented results.
It should be noted that there are several high-potential projects from which XOM will benefit for many years to come. One of them is off the coast of Guyana, where Exxon Mobil recently began producing oil. It plans to invest between $20 billion and $25 billion annually in the country through 2027 and expects Guyana (which went from zero production three years ago to 360,000 barrels per day at present) to produce close to 1 million barrels per day by the end of the decade. Exxon also made a final investment decision to develop their fifth and most expensive project on Guyana’s offshore Stabroek block (targeted for the 2026 start). The $12.7 billion Uaru project will produce around 250K barrels/day and cost 27% more than the previous project of equivalent size, reflecting rising costs. The company is also working hard to diversify into renewable energy with technologies like blue hydrogen and carbon capture. The company sees carbon capture and storage becoming a $4 trillion industry by 2050.
(2) EPS also likely to marginally beat the consensus estimates
Exxon Mobil’s Q2 2023 earnings per share is expected to be $1.84 as per Trefis analysis, slightly above the consensus estimate of $1.82. In Q1, Exxon’s net income more than doubled to $11.4 billion, or $2.79 per share, from $5.5 billion, or $1.28 per share, in the year earlier. The bottom-line difference was partly related to higher costs in the year-ago period and a one-time charge. Also helping things along in the first quarter of 2023 was a y-o-y increase in production. While the earnings have improved a lot from the first quarter of 2022, it still continues to be in a declining trend since Q3 2022 – due to falling energy prices. The energy giant revised its guidance for the second quarter (ended June 30) downward. The main reason here is the downward trend in natural gas prices. Exxon’s earnings per share totaled $4.45 in Q3 2022, then dropped to $3.40 in Q4 2022, and as already noted, settled to $2.79 in Q1 2023. By the look of things, this trend will continue into the second quarter as well.
(3) Stock price estimate higher than the current market price
Going by our XOM’s Valuation, with an EPS estimate of around $9.08 and a P/E multiple of around 12.7x in fiscal 2023, this translates into a price of nearly $115, which is almost 8% higher than the current market price. It should be noted that we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.
It is helpful to see how its peers stack up. Exxon Mobil Peers shows how XOM stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.
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