We issued an updated research report on leading integrated energy player, Exxon Mobil Corporation (XOM) on Jan 9, 2017.
Exxon Mobil is the world’s best run integrated oil company based on its track record of high return on capital employed. However, the company’s dividend yield is among the lowest in the industry.
As a result, Exxon Mobil carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
With a stable cash position, Exxon Mobil’s balance sheet is one of the best in the industry. We also note that the company provides the largest return to capital. In fact, the strongest return comes from the company’s large scale of operations and diversification benefits. As the largest publicly traded oil company, Exxon Mobil has long been a core holding for investors.
The OPEC’s recent deal to cut production amid the oversupplied commodity market has led to crude price recovery. Non-OPEC players have also agreed to limit crude output. Since Exxon Mobil’s production comprises a significant amount of oil, it will be able to sell the commodity at higher prices. This in turn will allow it to share more profits from its upstream business with its investors. This apart, Exxon Mobil has a huge base of chemical and refining operations that will continue to support growth if its upstream operation underperforms.
Despite substantial improvement in oil prices since last February, the commodity is still trading much below the level reached during mid-2014.
Hence, the persistent weakness in commodity prices remains as overhang on the stock.
Moreover, shares of the company underperformed the Zacks categorized Oil & Gas-International Integrated industry over the last six months…
During the period, the Exxon Mobil stock fell more than 7%, whereas the broader industry improved by 4%.
Stocks to Consider in the Energy Sector
Both Imperial Oil and Suncor sport a Zacks Rank #1 (Strong Buy), while Newfield carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Imperial Oil is undervalued, as revealed by its forward PE ratio of 18.21 compared with 143.7 for the broader industry.
Suncor posted an average earnings surprise of 40.55% in the last four quarters.
Newfield surpassed the Zacks Consensus Estimate in three of the last four quarters with an average earnings surprise of 754.83%.
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