What’s Next For Exxon Mobil’s Stock After Rising 24% This Year?

After a 24% rise since the beginning of 2024, at the current price of around $121 per share, we believe Exxon Mobil (NYSE: XOM), a leading explorer, producer, transporter, and seller of crude oil and natural gas – and North America’s largest energy company by market cap – could see gains in the longer term with limited growth potential in the near term. XOM stock has increased from around $99 to $121 year-to-date. The company saw its YTD earnings double so far this year from what they were in the same period of 2019 on a constant-price basis. The company saw a record third-quarter liquid output – thanks to the acquisition of Pioneer Energy Resources. This was despite weaker market conditions where Brent oil (the global benchmark price) averaged $72 per barrel during the quarter, down almost 17% year-over-year (y-o-y). The company has been looking to reduce costs, make high-return investments, and select divestments to improve profitability, particularly in bottom-of-cycle conditions. 

A stalemate continues to play out in Ukraine’s war entering its second winter. Tensions remain between the U.S. and China, which is the world’s largest oil importer. China’s oil demand has also been declining in the past several months. This year, China’s oil demand growth is expected to be around 180k barrels per day (bpd) from the average growth of one million bpd in the previous years. This was due to factors like economic slowdown and shift to electric vehicles. In addition, the latest battle between Palestinians and Israelis has stoked discord throughout the oil-rich Middle East. While uncertain geopolitical scenarios could lead to higher prices due to tighter supplies, output from the U.S. and other non-OPEC countries like Canada and Brazil has been rising, which is helping to balance the global oil market, limiting the price rise.

But, we believe that the energy giant’s fundamentals remain strong, which will likely pave the way for longer-term gains. The company has also improved its production and lowered costs since late 2022, which is a big win. Not to forget its meager debt-to-equity ratio (0.2x) which makes its balance sheet strong enough to withstand any further energy downturn. A company plan published by Exxon Mobil on Dec. 6 aims to double earnings by 2027, assuming Brent crude oil prices average $60 per barrel. Even if Brent crude oil reaches $35 per barrel, it said 90% of its upstream capital investments will be able to return 10% or more. That said, even mediocre oil prices have plenty of upside potential.

The increase in XOM stock over the last 3-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 58% in 2021, 87% in 2022, and -6% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period.

Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could XOM face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

In Q3, the company’s Q3 net production rose 5% quarter-over-quarter (q-o-q) to 4.6 million barrels of oil equivalent/day (boe/day), including the company’s highest liquids production in more than 40 years at 3.2 million bbl/day. XOM’s acquisition of Pioneer Natural Resources helped lift production in the Permian Basin to nearly 1.4 million boe/day, helping overcome a 17% decline in average oil prices in the quarter. Exxon’s net income fell to $8.6 billion, or $1.92 per share, from $9.1 billion, or $2.25 per share, in the year-earlier quarter, while revenues fell 1% year-over-year (y-o-y) to $90 billion. Q3 worldwide Upstream earnings plunged 13% q-o-q to $6.2 billion, driven by lower crude realizations and higher exploration expenses, partly offset by production. Energy Products rose 38% q-o-q to $1.3  billion, helped by lower scheduled maintenance. Its Chemical Products earnings rose 15% q-o-q to $893 million, driven by improved margins from lower North American feed costs and growth in high-value product sales, while Specialty Products earnings rose 5% q-o-q to $794 million, helped by higher industry basestock margins.

We forecast XOM’s Revenues to be $308.2 billion for the fiscal year 2024, down 8% y-o-y. Looking at the bottom line, we now forecast EPS to come in at 7.90. Given the changes to our revenues and earnings forecast, we have revised our XOM’s Valuation to $127 per share, based on $7.90 expected EPS and a 16.1x P/E multiple for the fiscal year 2024 – almost 5% higher than the current market price. It should be noted that we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.

Exxon has made a final investment decision to develop their fifth and most expensive project on Guyana’s offshore Stabroek block (targeted for 2026 startup). The $12.7 billion Uaru project will produce around 250K barrels/day, costing 27% more than the previous project of equivalent size, reflecting rising costs. 

It is helpful to see how its peers stack up. Exxon Mobil Peers shows how XOM stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

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

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