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High Oil Prices & a 38% 1-Year Rally: Is ExxonMobil a Buy?
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Key Takeaways
XOM stock has jumped 37.8% in a year, beating the industry and peers BP and Chevron.
ExxonMobil benefits from WTI above $85 and strong upstream assets in the Permian and Guyana.
XOM expects upstream output to reach 5.5MM boe/d by decade end.
Exxon Mobil Corporation (XOM - Free Report) has jumped 37.8% over the past year, outpacing the 33.2% growth of the industry’s composite stocks, and 27.1% and 22.9% improvements of BP plc (BP - Free Report) and Chevron Corporation (CVX - Free Report) , respectively.
Image Source: Zacks Investment Research
The outperformance might reflect strong market confidence in ExxonMobil’s prospects, especially when the pricing scenario of oil is extremely favorable. However, for investment conclusions, one should have a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions.
High Oil Price & XOM’s Key Upstream Assets
The price of West Texas Intermediate (WTI) crude is trading at more than $85 per barrel, according to data from oilprice.com, owing to the ongoing war in the Middle East. With XOM generating the maximum proportion of earnings from upstream operations, the crude pricing environment is highly favorable for XOM, like other integrated energy majors, such as BP and CVX.
To have a glimpse of its upstream assets, XOM has a strong footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing lightweight proppant technology and hence has been capable of boosting its well recoveries by up to as much as 20%.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Record production from both resources has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
In its recent corporate plan update, ExxonMobil projects its total production from upstream operations to increase to 5.5 million oil equivalent barrels per day by the end of this decade. The energy behemoth added that its advantageous assets, which include the Permian, Guyana and LNG, will be responsible for 65% of the total volumes.
ExxonMobil’s Strong Balance Sheet
ExxonMobil’s strong balance sheet is also worth mentioning. The company’s debt-to-capitalization of 14.04% is lower than the industry’s 29.2%. Thus, when the business environment turns uncertain, the company can rely on its balance sheet to keep its operations going.
Image Source: Zacks Investment Research
The integrated major, owing to its strong operations, is likely to continue rewarding investors with dividends. Over the past 43 years, the company has raised its dividend per share at an average annual rate of 5.8%.
What to Do With the Stock Now?
Coming to the valuation story, XOM is currently considered expensive on a relative basis, with the stock trading at a 9.70x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 6.08x. XOM is also expensive compared to other integrated giants like BP, currently trading at about 3.30x trailing 12-month EV/EBITDA. Chevron, however, trades at 9.87x and is hence more expensive.
Image Source: Zacks Investment Research
Thus, although XOM’s long-term outlook appears promising, it is overvalued, so now is not the right time to invest in the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Those who have already invested should hold the stock.
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High Oil Prices & a 38% 1-Year Rally: Is ExxonMobil a Buy?
Key Takeaways
Exxon Mobil Corporation (XOM - Free Report) has jumped 37.8% over the past year, outpacing the 33.2% growth of the industry’s composite stocks, and 27.1% and 22.9% improvements of BP plc (BP - Free Report) and Chevron Corporation (CVX - Free Report) , respectively.
The outperformance might reflect strong market confidence in ExxonMobil’s prospects, especially when the pricing scenario of oil is extremely favorable. However, for investment conclusions, one should have a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions.
High Oil Price & XOM’s Key Upstream Assets
The price of West Texas Intermediate (WTI) crude is trading at more than $85 per barrel, according to data from oilprice.com, owing to the ongoing war in the Middle East. With XOM generating the maximum proportion of earnings from upstream operations, the crude pricing environment is highly favorable for XOM, like other integrated energy majors, such as BP and CVX.
To have a glimpse of its upstream assets, XOM has a strong footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing lightweight proppant technology and hence has been capable of boosting its well recoveries by up to as much as 20%.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Record production from both resources has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
In its recent corporate plan update, ExxonMobil projects its total production from upstream operations to increase to 5.5 million oil equivalent barrels per day by the end of this decade. The energy behemoth added that its advantageous assets, which include the Permian, Guyana and LNG, will be responsible for 65% of the total volumes.
ExxonMobil’s Strong Balance Sheet
ExxonMobil’s strong balance sheet is also worth mentioning. The company’s debt-to-capitalization of 14.04% is lower than the industry’s 29.2%. Thus, when the business environment turns uncertain, the company can rely on its balance sheet to keep its operations going.
The integrated major, owing to its strong operations, is likely to continue rewarding investors with dividends. Over the past 43 years, the company has raised its dividend per share at an average annual rate of 5.8%.
What to Do With the Stock Now?
Coming to the valuation story, XOM is currently considered expensive on a relative basis, with the stock trading at a 9.70x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 6.08x. XOM is also expensive compared to other integrated giants like BP, currently trading at about 3.30x trailing 12-month EV/EBITDA. Chevron, however, trades at 9.87x and is hence more expensive.
Thus, although XOM’s long-term outlook appears promising, it is overvalued, so now is not the right time to invest in the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Those who have already invested should hold the stock.