Exxon Mobil Corporation (XOM) Stock Delivers Despite Low Oil Prices

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XOM - Exxon Mobil Corporation (XOM) Stock Delivers Despite Low Oil Prices

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In a world where oil is fighting to hold $50 per barrel, despite production cuts by OPEC, Exxon Mobil Corporation (NYSE:XOM) is a stock you buy for income, not capital appreciation or growth.

Exxon Mobil Corporation (XOM) Stock Delivers Despite Low Oil Prices

Still, the quarter ending in March was a pretty good one for Exxon, with earnings of 95 cents per share on revenue of $63.3 billion. This was well past the earnings estimate of 85 cents, and even beat the “whisper number” of 93 cents.

As a result, the shares were rising in the pre-market, approaching $82.50 per share.

The company’s board presaged good news by hiking the dividend 2 cents per share, to 77 cents, on Apr 26. This brought the stock’s yield up to 3.8%.

The dividend had not been sustained by earnings since 2015 but helped keep the stock price from collapse, as the company’s revenues have marched straight down, with the price of oil, from $421 billion in 2014 to $218 billion in 2016. Despite the dividend, the shares are down 8% so far in 2017.

Good News for XOM Stock!

The best news in the release is that the dividend is now fully supported by earnings, a 95 cent per share profit easily beating the 77 cents per share payout.

The language of the press release, however, was that of a company desperate for growth. “New discovery, strategic acquisitions and key initiatives position company for growth.” If you’ve got it, you don’t have to flaunt it. Exxon is not accustomed to having it.

There are some things to brag about in the report. XOM’s earnings more than doubled from a year earlier to $4.01 billion from $1.80 billion a year ago. But earnings rose in part because of a big drop in capital spending, to $4.189 billion from $5.127 billion. Lower spending, in other words, representing half the profit gain.

Exxon earned more money despite pumping less oil, the equivalent of 4.2 million barrels per day, down 4%, thanks to the fact that crude prices bounced off their early 2016 low of barely $30 per barrel and mostly bounced around $50 per barrel during the quarter.

That is unlikely to be the case over the next year. The price may hold $50 per barrel, it may even go up, but it’s unlikely to rise by two-thirds as it did.

Exxon Opening the Wallet

If earnings are to grow, it will be because Exxon Mobil is opening its vaults and spending to increase production. The release highlighted moves to secure new supplies off Guyana, Cyprus, Papua New Guinea and Mozambique, as well as Texas, and said it will be increasing production of high-quality lubricants at its Singapore refinery.

Separately it has announced it is building a giant new chemical plant near Corpus Christi, Texas, with Saudi partners. The company is pushing the marketing of its Mobil 1 oils and making small investments in algae-based fuels that can be promoted on TV commercials.

The Bottom Line for XOM

The beat on earnings should take Exxon out of the bargain bin, lowering the yield on the new dividend. It is unlikely to renew speculative fever in the stock, which depends on oil prices moving up from their present level.

Without higher oil prices, which fuel inflation as well as earnings, there is little reason to own XOM stock beyond income. Despite its extensive operations in refining and selling products, as well as its chemicals production, Exxon earnings remain tied to the price of oil, what it calls its “upstream” operations.

While analyst ratings are subject to change, more were telling customers to sell than buy the stock going into earnings. The fact that earnings now cover the dividend is promising, the rise in the dividend is welcome, and those who held the stock through the downturn now have a reason to believe there are better times ahead.

But better times are not boom times.

Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/exxon-mobil-corporation-xom-stock-low-oil-prices/.

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