After a tumultuous period in 2018, this year has turned out much better for oil giant Exxon Mobil (NYSE:XOM). In the first four months of 2019, the XOM stock price gained over 20%. But from May onwards, shares have gone sideways. The only time they broke this frustrating consolidation pattern was when it dropped in late May before picking back up.
Adding to the confusion, the oil firm will release its second quarter of 2019 earnings results on Friday. On the same day, XOM rival Chevron (NYSE:CVX) will also disclose their results. If there was ever a time to produce a beat, this is it. That’s because the print won’t just impact Exxon Mobil stock, but potentially, several other blue chips.
I say this because almost nonchalantly, the S&P 500 closed at a record high a few days ago. With the benchmark index currently above the key psychological level of 3,000 points, everyone wants to know if this bullishness against some tough headwinds is sustainable. How the XOM stock price responds to Q2 could clue us in on the real state of the economy.
When the energy stalwart missed on both earnings and revenue expectations for Q1, the fallout negatively impacted the S&P 500. After all, a healthy economy should have equally healthy demand for energy-related commodities. But when XOM failed to meet sales expectations on both their upstream and downstream businesses, the fundamentals didn’t justify the optimistic narrative; hence, Exxon Mobil stock unsurprisingly cratered.
Forgive me for saying the obvious: the company must produce a beat here. However, the pensive trading in XOM stock since mid-June has got me worried.
XOM Stock Under Pressure Ahead of Earnings
Whether you view the oil and energy markets as a glass half-full or half-empty, one thing is certain: as an earnings showpiece, Exxon Mobil stock has lost its charm.
In recent years, the company has incurred some disappointing performances. Since 2017, Exxon Mobil hasn’t produced a fiscal year where they beat consensus profitability targets for more than two quarters. In that year, the company missed in Q2 and Q4. For 2018, they missed the first half.
For this go around, analysts have pegged consensus earnings-per-share at a lowly 69 cents. That’s well on the low end of the estimate spectrum, which ranges from 55 cents to $1.14. In the prior-year Q2, the oil firm delivered EPS of 92 cents, down sharply from the $1.27 consensus.
On the revenue front, covering analysts anticipate a haul of $64.5 billion. This estimate is much closer to the bullish end of forecasts, which ranges from $47.7 billion to $77.4 billion. However, in the year-ago quarter, the company reported a top line of $73.5 billion.
Thus, for XOM stock to win in the upcoming Q2 report, it’s not enough just to produce a beat. Instead, management must deliver a compelling reason for prospective buyers to continue trusting the energy sector.
Unfortunately, the nearer-term picture doesn’t provide much confidence. In Q2 2014, Exxon generated nearly $106 billion in revenue. At the same time, the average XOM stock price was $83.90.
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In Q1 2019, revenue was roughly $62 billion, or a 42% drop. On the other hand, Exxon Mobil stock averaged $76.27, not too far removed from today’s price.
Put another way, XOM has taken a modest hit over five years, while the revenue picture has utterly collapsed.
Exxon Mobil Stock Requires Patience
Of course, the collapse in energy prices in 2014 was responsible for the meltdown. Still, the point remains that Exxon Mobil stock trades at a relative premium to Exxon the company. Therefore, if Q2 2019 doesn’t bring home the bacon, XOM might face some turbulence.
As I mentioned earlier, a poor result could also create a ripple effect in the broader markets. Under such a circumstance, Wall Street would recognize the disconnect between technical bullishness and fundamental bearishness.
That said, I still like XOM stock for the long haul. If tensions in Iran and the Middle East escalate, that would lever a direct impact on oil prices. On a less dramatic note, I don’t see the clean energy revolution superseding fossil fuels. For example, while electric vehicles have come a long way, we lack the infrastructure to support their wider integration.
This dynamic plays into the hands of Exxon Mobil stock. But for right now, I’m not sure if the underlying company has a good enough beat ready. Ultimately, then, I wouldn’t make any risky moves prior to the Q2 earnings report.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
