Shares of Exxon Mobil Corporation (NYSE:XOM) haven’t delivered the returns investors expected so far in 2017, but it’s not yet time to give up on XOM stock. The Texas-based integrated oil giant continues to make moves that can pay significant dividends in the quarters and years ahead.
Like other energy names such as BP Plc (ADR) (NYSE:BP) and Chevron Corporation (NYSE:CVX), which has sent the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) down almost 11%, XOM stock — itself down over 9% year to date and the worst-performing equity in the Dow Jones Industrial Average — operates in one of just two sectors posting losses so far this year. This compares to an almost 7% rise in the S&P 500 index.
Reasons to Bet on XOM Stock
Concerns about global oil supply glut earlier this week sent oil prices to their lowest level in 2017. But investors who have waited for a good entry point in Exxon Mobil Corporation stock now have their chance. Fresh on the heels of a strong first-quarter earnings report, which was the company’s highest quarterly profits in over a year, Exxon just parlayed those earnings with an acquisition that can send XOM stock back towards $100.
In a move aimed at boosting its output to meet demand in Asia, Exxon acquired a refining and petrochemical plant owned by Jurong Aromatics Corporation in Singapore last week. Citing Gan Seow Kee, chairman and managing director of ExxonMobil Asia Pacific division, Reuters noted that the plant will be integrated with Exxon Mobil’s current petroleum complex on Jurong Island.
With a crude oil processing capacity of 592,000 barrels per day and two steam crackers, Singapore is home to Exxon’s largest refining-petrochemical complex. “As a leading global manufacturer of aromatics, the addition of this aromatics plant to our existing operations in Singapore will help us better serve our customers in key Asian growth markets,” said Matthew Aguiar, Exxon’s senior vice president of basic chemicals, intermediates and synthetics.
Exxon said the deal, which will boost its aromatics production in Singapore to more than 3.5 million tons per year, will be completed in the second half of 2017. This news follow earlier deals including Exxon’s decision to take a 25% stake in a natural gas project offshore of Mozambique at a cost of about $2.8 billion.
The offshore Mozambique field could hold up to 85 trillion cubic feet of natural gas. This is a well-timed strategic deal that will enable Exxon to maintain its leadership position in liquefied natural gas, particularly given Mozambique’s abundant natural gas resources.
With $5 billion in cash on the balance sheet and another $25 billion in operating cash flow, Exxon continues to bet on itself, making the sort of investments to ensure the company is well positioned to meet return value to shareholders when the oil market rebounds.
Bottom Line for XOM Stock
XOM stock, which pays 3.8% annual yield, has not reflected the improvements the company has made. Nor has the market priced in the earnings growth the management is working to deliver with strategic operational improvements.
While the near-term outlook for oil prices might not look good, Exxon is here to stay. And with XOM stock priced at just 17.6 times fiscal 2018 earnings-per-share estimates of $4.64, calling for 16% growth, XOM stock should reach $100 in the next 12 to 18 months, delivering 22% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
