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ExxonMobil (XOM) to Report Q2 Earnings: Will it Disappoint?

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Oil giant ExxonMobil Corporation (XOM - Free Report) is set to report second-quarter 2017 results on Jul 28, before the opening bell.

Last quarter, the company reported earnings of 95 cents per share that beat the Zacks Consensus Estimate of 85 cents. The quarterly earnings also increased from 43 cents in the year-earlier quarter. Let’s see how things are shaping up for this announcement.
 

Exxon Mobil Corporation Price and EPS Surprise

 

Exxon Mobil Corporation Price and EPS Surprise | Exxon Mobil Corporation Quote

Factors to Consider this Quarter

Since the beginning of 2014, long-term debt load has been increasing. Our proprietary model shows that from 2014 to 2016, the company’s long-term debt increased from nearly $11,653 million to $28,932 million.

Also, net cash flow from operations has been declining steadily over the last three years, which reflects weak operations owing to persistently low commodity prices.  

Oil and gas prices have been down for almost three years and during second-quarter 2017, the prices of the commodities deteriorated further. The prolonged weakness can be attributed to the supply glut in the commodity market. In the quarter under review, oil and natural gas prices fell 8.4% and 5%, respectively. Hence, OPEC’s historical production cut extension deal until Mar 2018 has failed to drive upward price movement.

This development is not favorable for oil giants like ExxonMobil as the company’s cash flow might get affected further.

Following the shale revolution, the area along the Gulf Coast, which boasts plentiful supply of oil and gas, has regained focus. ExxonMobil is expected to capitalize on the availability of cheap natural gas to manufacture chemicals and energy efficient plastics for export. In other words, the company will cater to the growing demand for chemicals and refined fuels by taking advantage of the shale revolution. Hence, ExxonMobil is expected to generate significant cash flows from its downstream operations in the to-be-reported quarter as well as in the long run.

Share Price Movement

Shares of ExxonMobil have underperformed the industry in the last three months. During the aforesaid period, ExxonMobil’s stock has lost 1.8%, while the broader industry declined 1.6%. It remains to be seen how the stock fares after the second-quarter earnings release.

Earnings Whispers

Our proven model does not conclusively show that ExxonMobil will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -2.35%. This is because both the Most Accurate estimate stands at 83 cents and the Zacks Consensus Estimate is pegged at 85 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: ExxonMobil carries a Zacks Rank #4 (Sell). Please note that the Sell-rated stocks (Zacks Rank #4 or5) should never be considered going into an earnings announcement.  

Other Stocks to Consider

Here are a few firms that you may want to consider on the basis of our model, as these have the right combination of elements to post an earnings beat this quarter.

Boardwalk Pipeline Partners LP (BWP - Free Report) has an Earnings ESP of +6.90% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here

TransCanada Corporation (TRP - Free Report) has an Earnings ESP of + 7.84% and a Zacks Rank #1.

The Williams Companies Inc (WMB - Free Report) has an Earnings ESP of + 15.79% and a Zacks Rank #3.

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