Exactly a year ago, Exxon Mobil Corporation (NYSE:XOM) was trading at $81 at a time when crude oil prices — ostensibly the biggest driver of XOM stock — had just dipped below $30 a barrel for the first time since 2003. Fast forward to today, and oil prices have nearly doubled to $54 a barrel, and yet XOM stock remains stuck at $81 a share.
Huh?
You would think the recent runup in oil prices, largely facilitated by OPEC’s December decision to cut production for the first time in eight years, would have been a big boost to Exxon Mobil stock. Instead, the stock has actually fallen 6%.
XOM is not alone in that shortcoming — Chevron Corporation (NYSE:CVX), BP plc (ADR) (NYSE:BP) and others have also tumbled in the past three months — but those stocks already made their big moves when oil prices jumped last spring. XOM stock has been stagnant for a full year.
And that begs the question: How high do oil prices need to be for XOM stock to get going?
Exxon Needs to Demonstrate Growth
It could boil down to something as simple as earnings growth. Exxon Mobil hasn’t grown profits since the third quarter of 2014, and hasn’t grown sales since the second quarter of that year. Perhaps not coincidentally, XOM stock peaked at $103 that year. It hasn’t touched triple-digits since.
From 2010-2012, Exxon grew its earnings every year and its sales in two of the three years. In those three years, XOM jumped from $64 to $90. In the absence of top- and bottom-line growth these past two-plus years, Exxon stock has lost roughly 20% of its value.
Profit margins have also nosedived along with oil prices. Four years ago, Exxon’s margins were approaching 10%. They’re now below 4%. Theoretically, rising oil prices should help margins improve in the coming quarters, and the company’s sales and earnings are expected to make a quantum leap in 2017. Analysts are projecting 75% earnings growth and 35% sales growth this year. Should those estimates come close to being right, a return to growth could be the thing that awakens XOM stock from its slumber.
So long as oil prices don’t plummet again, that is. For the Exxon Mobil stock needle to move, it requires some combination of oil-price growth and its own growth. That’s what happened when the stock jumped from $57 in May 2010 to $101 in December 2013. XOM’s sales and earnings were mostly improving, and crude oil prices rocketed from less than $70 a barrel to $110 a barrel.
Bottom Line on XOM Stock
Now that oil prices are ticking up again, it’s undoubtedly good news for Big Oil companies. But for XOM stock to get going, it will have to demonstrate its own growth again.
If you believe in the estimates, it’s only a matter of time until that happens — Exxon’s per-share earnings are expected to double in the first quarter, with sales improving nearly 40%. If oil prices hold above $50 a barrel, I’d expect to see XOM stock start to climb out of the basement as we get closer to first-quarter earnings season.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
