ExxonMobil (XOM) stock has been lagging compared to its peers in the current quarter. While ExxonMobil stock has fallen by 3.0% so far in the quarter, Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) have risen 2.8%, 0.5%, and 2.6%, respectively. Also, Suncor Energy (SU) and Total (TOT) have risen 4.4% and 1.6%, respectively, quarter-to-date.
Despite November’s rise in ExxonMobil stock after its earnings, it has still not fully recovered this quarter. So, Wall Street doesn’t seem that enthusiastic about the stock.
Further, Wall Street analysts are divided on ExxonMobil stock. While 19 out of 24 analysts rate ExxonMobil stock as a “hold,” four analysts rate it as a “buy.” So, most analysts are adopting a wait-and-see approach for the stock. These analysts’ mean price target on ExxonMobil stock stands at $79, which implies a 15% upside potential.
ExxonMobil stock backed by a strong foundation
ExxonMobil is one of the world’s largest integrated oil and gas companies. The company’s long history has strengthened its financials. Although it has faced several business cycles, it has consistently returned wealth to its shareholders in the form of dividends. During this time, the company has maintained its balance sheet strength and liquidity position.
As reporting in its latest earnings release, ExxonMobil held 19.3% debt in its capital structure. This percentage is significantly lower than its peers’ average ratio of 29.0%. Despite weaker earnings in the first nine months of 2019, the company was able to fund its capital expenditure from its operating cash flows. In the first nine months, ExxonMobil’s operating cash inflows stood at $23.4 billion, and its cash outflows stood at $17.7 billion.
To learn more about XOM’s latest earnings, please read ExxonMobil Earnings Beat the Estimate, Stock Rose.
ExxonMobil’s growing portfolio
ExxonMobil has consistently invested in its growth. The company has ongoing projects in its upstream, downstream, and chemical segments, which should boost its earnings.
ExxonMobil’s critical upstream segment has a series of projects under development. The company’s mega discoveries include the Stabroek block offshore Guyana, which could add significantly to its hydrocarbon output.
Notably, the company’s shale and tight assets in the US have been growing. In the third quarter, ExxonMobil’s production rose 2.9% to 3.9 million barrels of oil equivalent per day, mainly led by growth in the Permian Basin.
In the first nine months of the year, ExxonMobil has invested about $22.7 billion in growth projects. Of its total capex, $17.4 billion was in upstream, $3.0 billion was in downstream, and $2.3 billion was in chemicals.
During the third-quarter earnings conference call, ExxonMobil’s VP of Investor Relations, Neil Hansen, noted, “In the Upstream, we are delivering on plans to grow liquids production and high-grade the portfolio. Recent project start-ups in Downstream and Chemical, continue to perform well, and we reached final investment decisions for eight key projects so far this year.”
Why most analysts have a “hold” rating on ExxonMobil stock
Wall Street analysts could be concerned about ExxonMobil’s immediate earnings growth prospects. Although the company has a vast and robust upstream portfolio, its key projects should ramp up in two to three years. So, analysts expect ExxonMobil’s 2019 earnings to fall by 44% YoY. This is the highest decline in profits compared to its peers. Next year, analysts expect XOM’s profits to recover by 42%.
The company’s forecast earnings could drop by 21% from 2018 to 2020. Notably, the estimated fall in ExxonMobil’s earnings is the steepest among its peers. Analysts expect Chevron and BP’s profits to fall by 10% and 9%, respectively, in the same period. However, they expect Shell, Total, and Suncor’s earnings to rise by 4%, 6%, and 24%, respectively.
ExxonMobil is a financially stable company with a robust portfolio. It has growth projects in the pipeline, which could start yielding results in a few years. However, Wall Street analysts expect weak earnings from the company in the near future. Perhaps analysts are waiting for concrete changes in XOM’s portfolio positioning before turning positive on the company’s outlook.