It has been a rough start to the year for Exxon Mobil Corporation (NYSE:XOM). Despite oil prices staying mostly above $50 a barrel, XOM stock is down more than 10% and has scarcely traded above its 50-day moving average all year. Worse yet, there are no catalysts in sight aside from an unexpected surge in oil prices.
With one exception. If Exxon beats earnings estimates at next week’s (April 28) earnings call, it could spark a rebound in XOM stock. The key word there is could — Exxon is coming off its worst quarter in nearly two decades, as a $2 billion write-down on some of its natural gas fields resulted in Exxon’s least-profitable quarter since 1999.
Thankfully, that was a one-time write-down, and analysts are expecting XOM’s earnings to double in the first quarter, presenting a pretty high bar to clear.
Still, Exxon’s top and bottom lines have a long way to go to get back to where they were as recently as three years ago.
Long Haul for Exxon Earnings Turnaround
With oil losing more than 70% of its value in a two-year span, Exxon has been forced to cut costs by slashing capital and exploration spending. The residue of that decision is that the company isn’t producing enough oil — production was down 3% in the fourth quarter. Thus, even with higher prices, Exxon hasn’t been able to produce enough oil to keep pace with its former self.
The good news is that Exxon’s sales improved year over year for the first time since the second quarter of 2014. It could be the beginning of an extended rebound in the company’s top-line growth: analysts are anticipating a 38% sales increase in the first quarter, and a 31% improvement for the year.
Meanwhile, Exxon Mobil stock continues to slide, falling from $83 to $80 in the last week. XOM has repeatedly tested support around $80.90 in the last two months; if it breaks below that number, the losses could mount unless next week’s earnings report offers a much-needed life raft.
Even then, there are no guarantees: when you subtract the natural gas write-down in Q4, XOM actually beat earnings estimates by more than 28%, and has done so for two straight quarters.
The consecutive earnings beats have done little to slow the slide in XOM stock. Maybe now that the stock has fallen so far, and good news involving Exxon Mobil has been scarce, investors will be more inclined to buy it after a solid earnings beat.
Wait and See With XOM Stock
But I’d wait to see how it reacts (and if earnings are better than expected) before buying XOM. Four straight months of declines is a tough trend to break; trends on Wall Street tend to last longer than people think.
If the stock breaks above its 50-day moving average (currently $82) and actually stays there for more than about a week for the first time all year, then a legitimate turnaround in XOM stock may be in the works.
Until then, let this sleeping giant lie.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.