Categories Analysis, Energy

XOM Stock: Strong energy demand will fuel growth for ExxonMobil

It is estimated that the global oil demand would grow steadily in the next few years, after recovering from the COVID-induced slowdown. The recent performance of market-leading energy firms like ExxonMobil Corporation (NYSE: XOM) indicates that the rebound is already gathering momentum. Reflecting the oil price rally that accelerated in recent months, ExxonMobil’s profit surged to a record high in the second quarter.

After falling to a multi-year low in 2020, ExxonMobil’s stock has stayed on the recovery path consistently, beating multiple headwinds including the market selloff. Interestingly, the shares performed exceptionally well this year and peaked a few months ago, a period that was particularly challenging for the board market. Experts are of the view that XOM has more room for growth, even after the strong gains. The stock is worth adding to investors’ portfolios, though the valuation looks a bit high.  

Capital Return

The Irving-based company, which is the largest energy producer in North America, has a long history of returning good value to shareholders, marked by dividend hikes with yields currently hovering near 4%. Income investors consider the stock a reliable bet, thanks to the company’s impressive track record of paying dividends over the past several decades without break. Also, the management follows an aggressive share buyback program, which was recently raised to $30 billion.

ExxonMobil Corporation Q2 2022 Earnings Call Transcript

The uptick in cashflows, aided by the crude price boom, gives ExxonMobil enough flexibility when it comes to deploying capital efficiently. A key priority has been the repayment of loans – currently, the company’s debt is around $40 billion, which is down 10% from the levels seen at the beginning of the year.

ExxonMobil Q2 2022 earnings infographic

Road Ahead

While betting on emerging opportunities in the conventional energy market to drive growth, the company is also investing in alternative energy solutions like hydrogen and carbon capture. That should attract environment-conscious investors who would otherwise stay away from oil companies. However, those initiatives are capital-intensive and might dent profit margins initially.

“Our new Corpus Christi chemical complex is up and running ahead of schedule and generated positive earnings and cash flow in its first quarter of operations. We have strengthened the balance sheet and are creating value for shareholders through an attractive dividend and increased share repurchases. We are advancing hydrogen, biofuels, and other low-carbon solutions, consistent with our intention to lead in the energy transition, leveraging our competitive advantages of scale, integration, and technology,” said ExxonMobil’s CEO Darren Woods in a recent statement.

Key Numbers

The company’s earnings more than doubled to a record high of $4.14 per share in the second quarter of 2022 and topped expectations, reversing the first-quarter miss and returning to the long-term trend of beating estimates. The strong outcome was driven by a 71% surge in revenues to $116 billion, which also came in above the forecast. Capital and exploration costs grew by a fifth during the three-month period, reflecting product innovation and continued investment in key portfolios like the Permian basin.

Among others in the industry, Chevron Corporation (NYSE: CVX) last week said its second-quarter earnings more than doubled, supported by an 83% surge in revenues. Both the upstream and downstream businesses performed well, with segment revenues growing more than 100%.

Infographic: How Halliburton performed in Q2 2022

After retreating from their June peak, shares of ExxonMobil bounced back and are currently trading close to the $100-mark. The stock, which has gained 17% in the past six months, traded lower on Monday afternoon.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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