ExxonMobil (NYSE:XOM) will report its earnings on Nov. 1 before the opening bell. The company has suffered amid falling oil and natural gas prices. Moreover, this report comes as Exxon stands accused of misleading investors about its climate change-related costs. However, these short-term headwinds could actually make the long-term outlook of XOM stock more attractive.
Analysts Expect Lower Revenue, Profits
Analysts, on average, predict the company earned 67 cents per share in Q3. That would represent a 54.1% decline from the EPS of $1.46 that the company reported for the same quarter a year earlier. Analysts also expect XOM’s revenue to take a substantial hit. Their average forecast is $64.79 billion, compared with the $76.61 billion that XOM generated in Q3 of 2018.
ExxonMobil remains a diversified energy company. However, its relatively large exposure to upstream activity has hurt its profits and XOM stock. That’s because slowing growth across the globe has taken a toll on both oil and natural gas prices.
Exxon Stock Remains a Long-Term Buy
The long-term outlook on XOM stock is straightforward and positive. For all of the talk about the switch to electric cars, lithium batteries can cause significant harm to the environment, according to the National Institutes of Health.
That’s bad for Tesla (NASDAQ:TSLA). It also could bode poorly for Ford (NYSE:F) and Toyota (NYSE:TM). However, it probably ensures that demand will remain strong for the fossil fuels produced by ExxonMobil, Chevron (NYSE:CVX), and their peers. And investors can assume that the world’s energy needs will primarily be met by fossil fuels for a long time to come.
Moreover, XOM stock pays an annual dividend of $3.48 per share, and it now yields 5%. Since Exxon Mobil has hiked its annual payout for 36 years, it’s probably safe to assume that it will be raised again in 2020.
Furthermore, stockholders will benefit from the company’s profit growth. Analysts, on average, expect its profit to increase by an average of 8% per year over the next five years. The price-earnings ratio of XOM stock is 17.5. Considering those factors, the long-term buy case for Exxon stock looks strong.
The Short-Term Outlook of ExxonMobil Stock Is Uncertain
Some long-term Exxon stock bulls, including InvestorPlace contributor Ian Bezek, think that the Nov. 1 report isn’t too important. However, many investors want to know whether they should buy XOM stock before the Nov. 1 announcement.
Unfortunately, those looking for a short-term trade might find ExxonMobil challenging. Lower oil prices and rock-bottom natural gas prices have driven Exxon Mobil’s profits and Exxon stock price down. Like Bezek, I do not see this situation changing anytime soon.
Further, the climate change lawsuit could hurt the company’s results down the road. The state of New York has accused the company of lying to investors about the costs of climate change.
New York’s attorney general alleges the company misrepresented climate data to make its investments appear more valuable and less risky. ExxonMobil insists it did nothing wrong. Legal experts estimate the trial will run 15 days, which means the Q3 report will come out during the trial.
How Bad News May Help XOM Stock
Investors should also not ignore the fact that XOM stock has lost about one-third of its value since it peaked in June 2014 at over $103 per share. Last December, XOM stock fell to a multi-year low of $64.65. Exxon has had one earnings miss over the last year. With the stock currently trading around $69 per share, a disappointing report could cause Exxon stock to retest its December low.
However, bad news could help the short-term case for Exxon stock. XOM stock could fall below $65 per share if the results are poor or the outcome of the climate change lawsuit is negative for Exxon Mobil. If XOM subsequently rebounds, it will have formed a double bottom. That, in turn, would increase the likelihood that the shares have bottomed for good, boding well for XOM stock going forward
Still, whether or not that scenario plays out, investors should probably wait until after the company releases its earnings and the lawsuit is resolved before buying Exxon stock. At that point, investors may have the necessary information to determine whether the long-awaited recovery of XOM stock has begun.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
