exxon mobil ,XOM) beat the odds. After being removed from the Dow Jones Industrial Average in August 2020 after 92 years, the stock used the return of oil prices in 2022 as a catalyst to prove its usefulness. But has XOM stock reclaimed the energy industry’s throne? And have oil reserves already peaked? Or is Exxon Mobil just getting started?
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XOM stock fell more than 15% from its all-time high of $119.63 on February 10. Oil stocks rose for five consecutive days on Tuesday, only to fall further on Wednesday as oil prices slumped.
Banking pressures also affected European banks. Saudi Arabia’s largest commercial bank, the Saudi National Bank (SNB), has said it cannot inject more money under pressure credit Suisse ,C), as it owns a maximum ownership of about 10%.
The news sparked more concerns about the potential for a financial crisis and recession, which in turn could hurt oil demand.
Oil prices hit a 15-month low on Wednesday with West Texas Intermediate (WTI) prices falling to $67.04 a barrel. For the week WTI is down about 12% and Brent crude is down about 11%.
Exxon stock’s recent pullback came amid the US banking crisis, sending it below its 50-day moving average and 21-day exponential moving average.
Crude oil prices lifted XOM stock
Analysts expect crude oil to average above $90 a barrel through 2023. So far this year, crude oil was in the range of $70 to $80, until it fell below $70 this week.
The oil giant’s XOM stock began rising in early 2022, first in response to rising oil prices and then as a reaction to Russia’s invasion of Ukraine. Exxon Mobil stock led a charge from its September lows, letting investors know that its increased production, rising profitability and a planned expansion of its refinery business weren’t just a fluke.
Exxon said the plan should double earnings and cash flow capacity by 2027 from 2019 levels as a result of “high-return, low-cost supply projects.”
The company also said that by 2027, upstream production is expected to increase by 500,000 oil-equivalent barrels per day to 4.2 million oil-equivalent barrels per day. More than 50% of the total is to come from the US Permian Basin and liquefied natural gas projects in Texas and New Mexico, Guyana, Brazil, in which the company is investing.
Exxon to pay $30 billion in dividends and buybacks in 2022. The company said in late January that it would repurchase shares worth $35 billion through 2024.
Will Exxon Lead an Emerging Energy Sector?
“We see our success as one more ‘more’ of the equation, in which we can produce energy and products for society’s needs and lead in reducing greenhouse gas emissions both from our own operations and those of other companies.” Maybe,” Darren Woods, chief executive officer, said in a December news release.
In August 2020, when Exxon was removed from the Dow, energy companies made up just 2.5% of the S&P 500. Energy now makes up about 5% of the S&P 500.
But Exxon’s strategy faces obstacles.
President Joe Biden and other Democrats keep lambasting the big oil companies for sitting on their profits. A November report from the US House Oversight Committee said Big Oil has no intention of abandoning climate-warming fuels for more solar, wind, hydrogen and other alternatives, but is instead attempting to “greenwash” Used to be. Greenwashing is when a company uses marketing to deceive people that they are more environmentally conscious than they really are.
Biden attacked the oil giants in the State of the Union address, saying their 2022 profit numbers were “outrageous” and criticized their stock buybacks. He said he did too little, too late to ease high energy prices, as oil hits more than $100 a barrel in the summer of 2022.
And purlin ,cvx) continues to battle foreign oil giants such as Exxon Mobil for leadership of the energy industry shell ,shell) And BP ,BP,
Exxon Stock: Fundamental Analysis
The company reported better-than-expected fourth-quarter earnings per share on Jan. 31, but missed sales estimates. It earned $3.40 per share.
The oil giant is one of America’s most profitable companies.
Exxon reported record profits of $55.7 billion for full-year 2022, up from $32.7 billion in 2021, with its highest revenue since 2013.
The Permian Basin produced a record production of more than 560,000 oil-equivalent barrels per day. Exxon Mobil increased Guyana and Permian production by more than 30% year-over-year last year.
Capital and exploration spending to increase from $16.6 billion in 2021 to $22.7 billion in 2022.
XOM stock has an 87 composite rating. Its EPS rating is a mediocre 78, and partially reflects losses in 2020. The company pays investors a 3.6% annual dividend yield.
Mutual funds have been adding oil stocks, up from 3,049 in September to 3,250 in December.
XOM Stock Technical Analysis
Shares are down 11% from a flat base’s 114.76 buy point, according to MarketSmith Pattern Recognition. The decline triggered a 7%-8% loss sell signal.
Shares fell below the 50-day and 21-day lines on March 7. On Wednesday, Exxon stock tested the 200-day line.
Note that the relative strength line began its descent in March during the banking crisis selloff.
Exxon Mobil’s 87 Relative Strength Rating means that it has outperformed 87% of the stocks in the IBD database over the past 12 months. The rating is a lagged number calculated using 12 months of data, with the most recent three months heavily weighted. Therefore, it should be used in conjunction with other fundamental and technical analysis tools when analyzing stocks.
Exxon’s Spending: Reinvesting in the Business?
The company generated a huge cash flow and reinvested that money in its refinery business and shale deposits.
Last summer, Biden blamed oil companies for rising gas prices and allocated $500 million for clean energy projects in mining lands across the US. , Biden has also opened up US strategic oil reserves, adding supplies to the market in an effort to lower gasoline prices.
The average price of gas across the United States was $3.47 a gallon on Wednesday, ahead of a $5 a gallon increase through the summer of 2022, according to AAA data.
Exxon’s response: “Exxon Mobil is investing more than any other company to develop the US oil and gas supply. This includes investing more than $50 billion in the US over the past five years, resulting in our There has been an increase of about 50% in the production of oil during this period.
So far, no major analysts have downgraded or upgraded Exxon stock over the past few months.
Exxon’s future
Research firm Rystad Energy expects a boom in new offshore drilling projects over the next two years, with investments totaling $214 billion. This is the biggest investment in two years in 10 years.
Guyana is key location for offshore drilling with Exxon and Hayes ,They said,) are already in a big project there.
Exxon discovered two more oil reserves in July off the coast of Guyana, bringing the total to seven oil wells discovered in and around the site.
In a Feb. 9 memo, the oil company said it is ready to begin a reorganization that splits Exxon Mobil into three businesses to cut costs. The new businesses will be Global Business Solutions, Exxon Mobil Supply Chain and Global Trading.
Under the new structure, the Business Solutions group will consist of smaller business units including financial services, procurement and customer service. The supply-chain group will include logistics and materials management. Both the divisions have become effective from May 1. The global trade business will include freight trade and raw materials, and will take effect by the end of the year.
The plan proposes to save $9 billion in annual costs by the end of 2023 versus 2019 levels.
Moving to New Headquarters Site This Year
The company also plans to move its headquarters from Irving, Texas, to Houston by mid-2023.
Oil demand is declining in the long term as alternative energy sources take hold. Independent US shale oil companies are reducing their spending to keep their balance sheets positive. This leaves the door open for oil majors to take market share.
Exxon has become a bigger shale player, growing its stake in the Permian Basin and picking up XOM stock.
Rivals are also moving to expand Shell holdings. In July 2020, Chevron announced it was buying Houston-based oil and gas independent producer Noble Energy in an all-stock deal valued at $5 billion. Noble owns 92,000 acres in the Delaware Basin of the oil-rich Permian.
and in October 2020, conocophillips ,COP) agreed to buy Concho Resources in an all-stock deal valued at $9.7 billion. This made it the largest independent US oil producer.
Big oil is battling climate change
Exxon has pledged to achieve net-zero carbon emissions from operations by 2050. But the pledge did not include emissions from consumers using oil and other fossil fuels.
In 2021, Chevron announced that it would achieve net-zero emissions from its upstream operations by 2050.
Exxon in December debuted one of the largest recycling facilities in North America, capable of processing more than 80 million pounds of plastic waste per year.
Exxon’s XOM stock follows oil prices
Like other oil stocks, Exxon will rise and fall with crude oil prices. So even if Exxon is looking good on fundamentals and technicals, a sudden drop in crude oil prices could bring down XOM stock as well.
Investors may choose to purchase an energy exchange-traded fund as a way to play sector moves while avoiding stock-specific risk. Energy Select Sector SPDR Fund (XLE) and the iShares US Energy ETF (Yes) are two energy-related ETFs. But those ETFs are still exposed to fluctuations in crude oil prices.
Exxon and Chevron are major loads in the axles.
Is Exxon’s XOM Stock a Buy?
Bottom Line: XOM declined sharply below key moving averages in early March, and is down 15% from its 52-week high. Now is not the time to buy XOM, as technical signals are showing a downside bias in the stock.
With volatility in the banking sector and falling oil prices, it is best to wait until we see a reversal above major moving averages on heavy volume.
Exxon has consistently outperformed volatile markets. But it will need reinvestment in oil, carbon capture and alternative energy to ensure it retains its leadership position.
Investors may want to check out IBD Centsock list and other IBD content to find dozens of the best stocks.
Follow Kimberly Koenig on Twitter for more stock news @IBD_KKoenig.
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