For Immediate Release
Chicago, IL – August 19, 2022 – Zacks Equity Research shares Exxon Mobil Corp. (
XOM Quick Quote XOM - Free Report) as the Bull of the Day and Nvidia ( NVDA Quick Quote NVDA - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla ( TSLA Quick Quote TSLA - Free Report) , General Motors ( GM Quick Quote GM - Free Report) and Ford ( F Quick Quote F - Free Report) .
Here is a synopsis of all five stocks:
Exxon Mobil Corp. posted a blockbuster second quarter, generating roughly $17 billion in free cash flow. The U.S. oil titan's earnings estimates continue to soar, driven by strong oil prices, streamlined business operations, and beyond.
Exxon's outlook remains impressive even as oil prices cool. Plus, XOM's valuation and dividend payout help make it worth considering as part of a diversified long-term portfolio and during the exuberant stock market rebound.
Exxon's Energy Pitch
Exxon is one of the world's largest publicly traded energy providers and chemical manufacturers, with a diverse portfolio of offerings that help drive modern economies. XOM runs upstream operations, with oil and natural gas exploration and development around the world. The firm is also a leading refiner and marketer of petroleum products. These segments are poised to remain Exxon's lifeblood for the foreseeable future.
Exxon's executive team is, of course, more focused than ever on the future. These efforts include its product solutions segment that aims to help reduce greenhouse gas emissions and plastic waste by "developing more sustainable products such as lower-emission fuels, chemical performance products and next-generation lubricants and plastics."
Exxon is also actively investing in hydrogen technology, biofuels, and other lower-emission fuels. On top of that, XOM continues to make progress on the carbon capture and storage fronts.
The Oil and Energy Boom
Oil and energy experienced a rough stretch during the 2010s as oil and natural gas production in the U.S. boomed. Part of the energy sector's decline was due to the large increase in supply, driven by the advent of hydraulic fracturing (fracking). At the same time, the push toward renewable energy saw some on Wall Street avoid investing in oil and gas.
The so-called lost decade for oil and gas companies forced Exxon and others to reevaluate every aspect of their businesses, slimming down operations to run more efficiently than ever. The cost-cutting measures are now paying off in a huge way amid rebounding oil and energy prices.
Exxon is investing in a lower-carbon future and the green energy boom appears here to stay. Yet, the comeback off the covid lows and the huge boom in 2022 helped cement the critical roles crude and natural gas play in the global economy.
Oil and natural gas will likely continue to be some of the backbones of economies around the world for decades to come. And the Russian invasion of Ukraine highlighted just how important Exxon and other titans are, as supplies struggle to meet growing global demand.
Exxon and others benefited from rising oil and energy prices amid the huge rebound in demand as the U.S. and other economies roared back to life. Travel, including air travel, has already mounted a serious comeback and broader energy demand is attempting to return to pre-Covid levels.
XOM's Growth and Outlook
Exxon is the largest U.S. oil company with a market cap approaching $400 billion. XOM reported strong growth in 2021 and historic strength in first-half of 2022, driven by soaring oil and energy prices that saw crude climb to $120 a barrel at one point.
Exxon posted record quarterly profit in the second quarter, with its adjusted Q2 earnings up 276% to $4.14 per share, driven by record refining margins.
XOM's FY22 and fiscal 2023 consensus earnings estimates extended their march higher following its impressive results on July 29. The company's FY22 EPS estimate is now up 21% over the past 60 days, with FY23 over 13% higher. XOM's bottom-line positivity helps it land a Zacks Rank #1 (Strong Buy) at the moment.
Exxon's FY21 revenue soared 57% to $285.6 billion and it swung from an adjusted loss of -$0.33 per share to +$5.38 a share. Looking ahead, Zacks estimates call for its revenue to climb 47% higher this year to hit $418.51 billion to lift its EPS by 131%.
At the moment, Exxon's sales and earnings are projected to pull back off these levels in 2023. But the expected YoY dip hardly signals a huge economic slowdown.
Exxon's Oil and Gas -Integrated–International industry sits in the top 12% of over 250 Zacks industries. Exxon's stellar 2021 helped it repay about $20 billion in debt, or most of the total debt it borrowed during the pandemic downturn.
The company's ratio of net debt to capital dropped to 13%, which should help it thrive even as oil hovers around $90 a barrel.
The reduced debt load and high margins are also helping the firm return tons of value to shareholders. XOM said earlier this year it would triple its share repurchases, while slightly increasing its oil-field spending and production.
Exxon's 3.8% dividend yield provides investors solid income that tops its highly-ranked industry's average. XOM's yield also crushes the 10-year U.S. Treasury's 2.88% and the S&P 500's 1.4%.
Exxon shares have soared 125% in the last two years to outclimb its industry's 78% and the S&P 500's 27%. This stretch of success includes a 54% surge in 2022 vs. the benchmark's 11% decline and its industry's 28% gain.
XOM did drop rather significantly off its early June highs of $105 per share to around $83 in the middle of July. Exxon has bounced back to around $94 a share, which still offers 8% upside vs. its current Zacks consensus price target. And the stock has found strong support at some key technical levels over the last year.
Despite its climb, Exxon is trading at a 40% discount to its year-long highs at 8.3X forward 12-month earnings. This also marks a 25% discount to its year-long median and right near its lows not only over the past 12 months but over the last 10 years. The nearby chart showcases its strong valuation, with the Covid demand evaporation creating that strange vertical section in 2020.
Nvidia is a chip superstar that's expanded its reach far beyond the gaming industry into data centers and beyond.
The GPU maker has, however, come under pressure due to slowing demand as consumers shift their spending habits. Nvidia on August 8 provided downbeat preliminary second quarter FY23 guidance that forced analysts to trim their earnings outlooks. And the stock is still down over 35% in 2022.
Nvidia transformed into a Wall Street favorite in the chip space on the back of its ability to supply the growing gaming industry with great processors.
Yet it was NVDA's expansion into and success within the booming world of data centers and cloud computing that established Nvidia as a global technology titan and the largest U.S. chipmaker by market cap.
Despite its ability to grow over the long-haul within crucial tech industries, Nvidia is still exposed to the broader cyclical nature of the semiconductor market. Nvidia on August 8 offered up preliminary second quarter revenue guidance of $6.70 billion vs. its initial outlook of $8.10 billion, driven by a big slowdown in gaming.
Nvidia said that the shortfall relative to the May revenue outlook is "primarily attributable to lower sell-in of Gaming products reflecting a reduction in channel partner sales likely due to macroeconomic headwinds." Nvidia said its overall Q2 revenue is still projected to climb 3% YoY, with data centers sales up 61% and gaming down 33%.
The lowered gaming guidance was accompanied by slightly-lower-than-projected data center revenue. The new outlook is set to eat into its margins and bottom line. Nvidia's updated earnings estimates help it land a Zacks Rank #5 (Strong Sell) at the moment, alongside its "F" grades for Value and Momentum in our Style Score system.
Nvidia's Semiconductor – General industry is currently in the bottom third of over 250 Zacks industries. NVDA stock is down around 36% in 2022 and it's still trading at 48.8X forward 12-month earnings vs. its industry's 25.1X average.
NVDA is, of course, one of the largest tech stocks on the planet and it's poised to thrive over the long-haul. But it might be prudent for investors to shy away from Nvidia for the moment until it provides updated full-year guidance when it officially reports on August 24.
Additional content: 3 Long-Term EV Plays to Reap Benefits from the Climate Bill
President Biden has signed the sweeping climate change bill into law. The bill — also called the Inflation Reduction Act (IRA) — is the boldest climate legislation in U.S. history. The landmark bill seeks to allot around $370 billion toward clean energy initiatives to turbocharge decarbonization efforts, which would put the United States on track to reduce greenhouse gas emissions by nearly 40% below 2005 levels by the decade-end.
The electric vehicle (EV) space is likely to emerge as one of the beneficiaries of the new climate bill. As it is, amid heightening climate concerns and technological advancement, more and more cars are getting electrified as legacy automakers are fast shifting gears to e-mobility. And now this IRA is set to further supercharge the prospects of the EV industry.
To capitalize on the e-mobility future, consider adding to your watchlist the EV king
Tesla as well as two auto giants that are rapidly revving up their electrification game— General Motors and Ford. Before discussing these stocks, let's take a look at the key takeaways of the climate bill for the automakers. IRA to Unlock EV Discounts Albeit With Caveats
The bill seeks to transform the U.S. auto industry with incentives that would induce automakers to accelerate the production of zero-emission vehicles in an effort to meet environmental goals.
To encourage the adoption of EVs, the IRA includes a $7,500 tax credit till 2032 on the purchase of a new EV. Importantly, the tax credit will be sans the 200,000-car cap. In the current scenario, the tax credit phases out once a company has reached the 200,000 EV sales mark. A few auto biggies, including Tesla, General Motors and Toyota, have already exhausted the limit. The updated EV tax credit would remove that cap at the start of 2023.Beginning next year, the vehicles of these auto giants will again become eligible for a tax credit as long as they are manufactured in North America and meet the raw material sourcing requirements.
This brings us to one of the major concerns that automakers are set to face. The new bill has provisions for tax credits only for vehicles that are assembled in North America. In other words, the law immediately disqualifies any EV produced outside North America to take advantage of the incentives. Going by that, around 70% of the 72 models currently eligible for the $7,500 tax credits will no longer get the benefits, per the Alliance for Automotive Innovation. Notably, some of the mass market brands, including the Hyundai Ioniq 5, Kia EV6 and Toyota Rav4 Prime are no more eligible for the tax credit as they are not domestically manufactured.
And things would get tougher with the raw material sourcing criterion that comes into effect in 2023. Notably, the raw materials for the vehicle batteries should be procured only from countries with which the United States has free-trade agreements, starting from 2023. While the bill surely seeks to promote domestic battery manufacturing, many EVs will get disqualified for the credit benefit right off the bat.
There's also a new $4,000 credit on used EVs, which are priced at $25,000 or less. But to be eligible for the tax credit for a used vehicle, the gross annual income of a family should not exceed $150,000 (for joint tax filers) or $75,000 (for individual tax filers).
For the new vehicles to qualify for tax credits, the sticker price for sedans should be below $55,000. Meanwhile, SUVs, trucks and vans, should not be costing more than $80,000.To qualify for the new EV credit, buyers' taxable income will be capped at $150,000 if they are single filers or $300,000 for joint filers.
While on the surface, the IRA looks like a sure-fire legislation to fast-track the EV industry, things are not that hunky dory. With the new legislation, it may get difficult for many cars to qualify for the credit right, considering the sticker price and income caps. And most importantly the fact that the law requires the cars and batteries to be "made in America" remains a major limitation.
So, the new legislation may not be much beneficial for automakers, which don't manufacture a large number of EVs in the United States or certain EV upstarts whose vehicles are too expensive to qualify for credit. Meanwhile, companies like Tesla, General Motors and Ford stand to benefit from the new climate bill as they have reorganized their supply chains to manufacture vehicles in America.
3 Stocks in Focus Tesla: With the sales threshold removal under the new bill, Tesla will regain eligibility for incentives beginning 2023 for its entry-level, Model 3 RWD variant, which is priced under $55,000. With both variants of Model Y classified as SUVs and meeting the price caps, they would also qualify for tax credits. Industry watchdogs believe that Tesla is the closest in terms of fulfilling the raw material sourcing requirements from the United States or trading allies, as mandated by the new law.
This EV behemoth currently carries a Zacks Rank #2 (Buy). The robust demand for Models 3 and Y is buoying Tesla's revenues. High volumes are also aiding Tesla in achieving production efficiencies, thereby strengthening gross margins. The company's long-term expected EPS growth rate is 31.2%.
General Motors: While GM has also exhausted its quota of 200,000 electric cars, it will again qualify from next year now with the new climate bill. The company has numerous affordable EV brands that will be eligible for the $7,500 tax credit. These include Cadillac Lyriq, Chevy Bolt EV, Chevy Bolt EUV, Chevy Silverado EV, Chevy Blazer EV, Chevy Equinox EV and GMC Sierra EV. Silverado and Sierra EVs will only be eligible for lower trim levels considering the price cap.
General Motors, currently carrying a Zacks Rank #3 (Hold), intends to roll out 30 EV models by 2025-end. GM's Factory ZERO and plants in Spring Hill and CAMI are setting the stage for the company's electrification goals. GM's Ultium Drive system is scaling up its e-mobility prowess. The company's long-term expected EPS growth rate is 10%.
Ford: In May, Ford's CEO Farley notified that he expected the Ford EV tax credits to dry up by late 2022 or early 2023. But with the elimination of the quota of 200,000 cars, Ford's popular EV models stand to take advantage of the discounts under the bill. Both Mustang Mach E and F-150 Lightning are eligible for the tax credit, considering their manufacturing status and sticker price. All trim levels of Mustang Mach E— manufactured in Mexico with prices well below the $80,000 threshold for SUVs —qualify. Built in Michigan, all Standard Range models of the F-Lightning e truck that will fall below the $80,000 threshold qualify for the tax credit.
Ford currently carries a Zacks Rank #3. The firm's aggressive EV push, with planned spending of around $50 billion by 2026 and the target production of over 2 million EVs by 2026-end (representing 70% CAGR), augurs well for long-term growth. By 2030, Ford expects EVs to account for 50% of its global sales, which will cement its position in the red-hot EV landscape. The company's long-term expected EPS growth rate is 9.1%.
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