The Energy Sector’s Roaring Comeback
If you’ve been paying attention to ExxonMobil’s (NYSE: XOM) recent performance, you’d have noticed a spectacular 11% surge in just a month. While the broader S&P 500 trudged along with a mere 3.6% gain, ExxonMobil and its energy cohorts have been smashing expectations, fueled largely by the upward drive in crude oil prices.
Speaking of crude oil, the international benchmark Brent prices soared approximately 11% in the first quarter of the year, reaching impressive heights far exceeding their already respectable figures.
ExxonMobil’s Sweet Spot
Ever since the merger announcement with Pioneer Natural Resources, ExxonMobil has had investors on the edge of their seats, especially with its stock hitting a record high. The energy giant seemed to be on an unstoppable trajectory, similar to many exploration and production companies marking a historic peak.
However, the plot thickened when Exxon’s stock, alongside oil prices, dipped towards the end of 2023, contrasting with the S&P 500’s upward climb. Just when it appeared as though Exxon might have overplayed its hand yet again, the tides turned in favor, with a resurgence in oil prices instilling fresh confidence in the oil sector.
With Brent prices comfortably hovering around $87 per barrel and West Texas Intermediate not far behind at $83 per barrel, the scenario is tailor-made for ExxonMobil. Its corporate strategy is pulsed at a $60 per barrel Brent price, making anything above that a windfall that can be channeled back to shareholders through buybacks, dividends, or further expansion endeavors.
Bound by Success: An Encore on the Horizon?
If Exxon can replicate its stellar performance from the previous year, it stands to be a monumental triumph for its stakeholders. With sales and earnings hitting decade-high figures, a robust 13.1% operating margin, and a whopping $33.5 billion in free cash flow, Exxon paved the way for returning a generous $32.4 billion to its investors through buybacks and dividends. Given the recent merger dynamics with Pioneer, shareholders might not witness an immediate flurry of buybacks, but the future seems promising with each uptick in oil prices heralding accelerated growth and enhanced shareholder returns.
Furthermore, Exxon’s resolute focus on maintaining a sturdy balance sheet through strategic debt reduction has remarkably transformed its financial landscape. From grappling with a precarious net debt position, the company now flaunts virtually no net debt on its balance sheets, all courtesy of the buoyant oil market.
Setting the Stage for a New High
Despite currently trailing by a modest 3% from its zenith, Exxon is poised on the brink of reclaiming its all-time high. If 2024 mirrors the successes of the preceding year and offers a promising outlook for 2025, Exxon might effortlessly breach its previous records, potentially outshining the S&P 500 along the way.
While Exxon’s fortunes are inextricably linked to market dynamics and the delicate balance of oil and gas supply and demand, operating in an environment where Brent crude oil surpasses $80 per barrel translates to a seemingly flawless business landscape. Even when Brent hits $60 per barrel, Exxon manages to navigate profitably. This substantial buffer should instill investors with resounding confidence in ExxonMobil’s investment proposition. At a modest 13.1 price-to-earnings ratio and a generous 3.3% dividend yield, Exxon emerges as a balanced investment choice for not just 2024 but also beyond.
Before diving into an investment in ExxonMobil, it’s crucial to consider that while the current meteoric rise is alluring, the Motley Fool Stock Advisor team has handpicked what they consider the top 10 stocks with the potential for substantial returns in upcoming years. ExxonMobil might be a giant, but there could be other hidden gems waiting to be unraveled.
*Stock Advisor returns as of April 1, 2024
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool recommends Pioneer Natural Resources. The Motley Fool has a disclosure policy.
