It has not been a good run for energy stocks. And despite being considered a king in the sector, Exxon Mobil (NYSE:XOM) was unable to escape the beating. Shares suffered mightily, with Exxon Mobil stock falling more than 54% from the January high to the March low.
And while the selloff was brutal, the stock actually outperformed the Energy Select Sector SPDR ETF (NYSEARCA:XLE), which fell about 61%. Others, like Halliburton (NYSE:HAL), meanwhile, fell more than 80%.Is Exxon Mobil Stock the Best Oil Company to Buy?
So although XOM outperformed its sector, let’s be careful not to gush over its performance. This stock — which was already under pressure coming into 2020 — was still cut in half in just a few months.
The new operating environment dramatically alters Exxon’s business, and the underlying volatility — in both the oil market and the equity markets — will make it tough on investors and management alike.
Valuing Exxon Mobil Stock
When Exxon reported earnings on May 1st, we saw just how difficult the operating environment was. Non-GAAP earnings beat estimates (showing a profit of 53 cents per share), but GAAP results revealed a $610 million loss in the quarter. That didn’t look great next to a profit of $2.4 billion in the same period in the prior year.
Also, revenue plunged 16.3% sequentially and 11.7% year-over-year to $56.16 billion. This result beat analysts’ estimates by more than $4 billion. Furthermore, management said it would slash its CapEx by about 30%, as it looks to preserve cash and cut down on spending amid these uncertain times. Plus, there’s more than enough oil supply to go around at the moment.
Unlike many of its peers, though, Exxon Mobil stock has not slashed its dividend. The company most recently made a quarterly dividend payment of 87 cents per share.
While Exxon didn’t raise its dividend this year (as it usually does in the April quarter), not cutting the payout should be viewed as a victory for investors. At current prices, XOM stock yields more than 7.8%. That’s a killer dividend if it can be maintained, particularly as the 10-year Treasury bond pays out less than 70 basis points.
Presently, Exxon Mobil stock is forecast to bounce back at a decent pace. While analysts expect a loss of 30 cents per share this year vs. a profit of $2.24 per share in 2019, consensus expectations call for a profit of $1.42 per share in 2021.
Revenue is also forecast to recover in 2021, rising 14% for the year after forecasts call for a decline of 28% this year. Let’s not be too optimistic, though. Hitting 2019 results are likely a ways off. And right now, the goal is to weather the storm.
Trading XOM Stock
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On the chart here, one can see how Exxon Mobil stock tumbled down to $30. There, the stock bounced off the lows, then caught a strong bid over the next few trading sessions.
From there, XOM did a great job avoiding a retest of the lows, even if that’s what bears and bulls who missed the low both wanted. In fact, because both wanted it, that’s probably why it never came to fruition.
Instead, shares slowly grinded their way higher, with Exxon Mobil stock unable to gain much momentum until early June. shares ultimately topped near the 61.8% retracement, before settling into the current trading range.
On the upside, shares are bound by the 50% retracement and 20-day moving average. On the downside, the 50-day moving average and 38.2% retracement are acting as support.
From a technical perspective, investors should look for a break of either one of these levels. If support breaks, it technically puts the $40 level back in play. If resistance gives way, the 61.8% retracement is back on the table, followed by $55 and the 200-day moving average.
So, is Exxon Mobil stock the best oil company to buy?
Well, it’s certainly not the worst. It has a stronger financial position than most of its peers, will see business rebound a bit in 2021 and has a very big dividend yield. If the technicals align, it’s hard to dislike the conglomerate down here.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.
