Exxon Mobil’s Stock Surges: What to Expect Next

Exxon Mobil (NYSE: XOM), North America’s largest energy company by market cap, has seen its stock price rise 24% since the start of 2024, reaching approximately $121 per share. But while the company has shown impressive short-term gains, prospects for further growth in the near future may be limited. Year-to-date, the XOM stock has moved from roughly $99 to its current price. Interestingly, its year-to-date earnings have doubled compared to the same period in 2019 when adjusted for constant prices. The recent acquisition of Pioneer Energy Resources contributed to record liquid output in the third quarter despite facing challenging market conditions, such as Brent crude oil prices averaging $72 per barrel, a 17% decline from last year. As oil prices remained steady, the company has focused on cost reductions, high-return investments, and select divestments to enhance profitability, especially during bottom-of-cycle conditions.

Global Events and Oil Market Dynamics

The ongoing war in Ukraine enters its second winter amid persistent U.S.-China tensions, significantly impacting the global oil market. China, the largest oil importer globally, has experienced a decrease in oil demand in recent months. Forecasts suggest China’s oil demand growth will be only 180,000 barrels per day (bpd) this year, a stark contrast to the prior average growth of one million bpd. Contributing factors include economic slowdowns and a shift towards electric vehicles. Additionally, escalating conflicts in the Middle East have raised concerns, yet the increasing output from the U.S. and other non-OPEC nations like Canada and Brazil is helping to stabilize the oil market.

Exxon Mobil’s Strong Fundamentals

Despite recent volatile market conditions, Exxon Mobil’s fundamentals appear robust and suggest potential long-term gains. Since late 2022, the company has enhanced production and reduced costs, contributing positively to its financial health. With a low debt-to-equity ratio of 0.2x, Exxon is well-equipped to navigate any downturns in the energy sector. The company’s plan, announced on December 6, aims to double earnings by 2027, assuming average Brent crude prices of $60 per barrel. Notably, Exxon claims that even with Brent prices at $35 per barrel, 90% of its upstream capital investments could yield returns of 10% or more, hinting at significant upside potential even in challenging scenarios.

Stock Volatility Compared to Market Trends

Examining XOM stock performance over the past three years reveals considerable volatility when compared to the S&P 500. Stock returns were 58% in 2021, 87% in 2022, and saw a decline of 6% in 2023. For reference, the Trefis High Quality (HQ) Portfolio, which contains 30 stocks, has consistently outperformed the S&P 500 each year during the same period.

Prospects for the Upcoming Year

Given the current unpredictable macroeconomic climate, characterized by discussions of potential interest rate cuts and geopolitical conflicts, market analysts are left wondering: will XOM continue its performance trend, or is underperformance on the horizon? In the third quarter, Exxon’s net production increased by 5% from the previous quarter to 4.6 million barrels of oil equivalent per day. This surge included the company’s highest liquids production levels in over 40 years at 3.2 million bbl/day, thanks to the acquisition of Pioneer Natural Resources. While XOM’s net income declined from $9.1 billion a year earlier to $8.6 billion in the most recent quarter, revenues stayed relatively stable, decreasing only 1% year-over-year to $90 billion. Furthermore, earnings from its Energy Products segment rose 38% q-o-q to $1.3 billion, attributed to less scheduled maintenance, and Chemical Products earnings climbed 15% q-o-q to $893 million, aided by improved margins.

Financial Forecasts

Looking ahead, we estimate XOM’s revenues for fiscal year 2024 will be approximately $308.2 billion, reflecting an 8% decline from the previous year. Projected earnings per share (EPS) have been adjusted to $7.90. Consequently, we have revised XOM’s valuation to $127 per share based on an expected EPS and a 16.1x P/E multiple for the fiscal year 2024—nearly 5% higher than the current share price. Our analysis considers the core sales revenue from hydrocarbons, excluding other income streams.

Investments and Future Projects

Addition to its financial strategy, Exxon has decided to invest in its most costly project to date in Guyana’s offshore Stabroek block, with a target startup in 2026. The Uaru project, expected to cost $12.7 billion, will produce around 250,000 barrels per day, marking a 27% increase in expenditure compared to a previous project of similar size.

Comparing Exxon Mobil with its Peers

It’s essential to understand how Exxon Mobil’s performance stacks up against its peers by analyzing key metrics in the industry, which could provide insights into its competitive positioning.

[1] Returns as of 11/11/2024
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.