Was it a smart idea for Exxon Mobil (NYSE:XOM) to issue an ominous warning prior to its July 31 second-quarter earnings report? That’s the billion-dollar question as it will impact investors’ decision as to whether to buy Exxon Mobil stock now or to wait instead until after the earnings announcement.
As you likely know, Exxon Mobil’s first quarter wasn’t exactly a blockbuster. Plus, analysts aren’t extremely confident that the energy giant will deliver a positive surprise on its earnings announcement day.
And again, the company itself is preparing investors for less-than-stellar quarterly results. But this could be nothing more than a devious instance of reverse psychology.
Is Exxon Mobil putting itself down only to build itself up? Let’s see if we can dig up some answers to this puzzler of a question.
A Closer Look at Exxon Mobil Stock
But first, I have a word — or several hundred of them — on Exxon Mobil stock. In case you weren’t already aware, Exxon Mobil stock pays out a generous dividend. At the moment, the forward annual dividend is 7.9%, which is pretty darn good even among energy-sector companies.
Besides, Exxon Mobil stock features a trailing 12-month price-earnings ratio of 16.4 times. That is fairly low and tends to suggest a strong value at the current share price.
That P/E ratio reflects the depressed price of Exxon Mobil shares as the company hasn’t fully recovered from the economic damage wrought by the novel coronavirus. Prior to the pandemic, $68 was a typical price for XOM shares. But you can currently pick them up for just $44 each.
This Might Hurt a Little Bit
As I alluded to earlier, Exxon Mobil issued a rather dire warning about the company’s Q2 data. Specifically, Exxon Mobil’s earnings were hurt by a number of factors, resulting in a second consecutive quarterly loss.
Those factors include heavy losses in Exxon Mobil’s oil and gas production business as well as the company’s refining business. Other contributing factors could include reduced oil and gas prices during the second quarter of 2020, as well as reduced demand for energy products due to the coronavirus.
In regard to that last factor, the International Energy Agency reports that the global demand for oil declined by around 18%. Moreover, FactSet states that during the second quarter, U.S. benchmark oil prices were, on average, $29 per barrel.
That’s cheap. And while it might be great for the consumer, there’s little doubt that this issue will weigh heavily on Exxon Mobil’s quarterly earnings data.
Purposeful Pessimism?
To be frank, Exxon Mobil’s first-quarter earnings report wasn’t delightful. The company recorded a massive $610 million quarterly loss. That was Exxon Mobil’s first quarterly earnings loss in 30 years.
Will the second quarter outdo the first? The analyst community is broadly pessimistic, expecting Exxon Mobil to announce a quarterly loss of approximately $2.3 billion, as reported by FactSet.
Exxon Mobil had already announced earlier in 2020 that the company plans to reduce its second-quarter oil production by around 400,000 barrels per day. Clearly, expectations surrounding the upcoming earnings data will be markedly low.
However, there might actually be a method to the madness here. Is it possible that Exxon Mobil is purposely setting rock-bottom expectations for the second-quarter release?
And, could that plan bear fruit in the form of a positive earnings surprise? Maybe or maybe not, but that’s a game for mega-corporations to play and cautious investors to avoid. To be blunt, trying to second-guess Exxon Mobil’s intentions in front-running unfavorable data isn’t a game worth playing.
The Bottom Line
Bad news is bad news, anticipated or not. Therefore, it’s best for investors to wait until energy-market conditions improve before taking a position in Exxon Mobil stock.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
