ExxonMobil Foresees a Decrease in Its Earnings. Could Be a Prime Opportunity to Acquire Oil Shares at a Discount?
ExxonMobil, with its ticker symbol XOM shedding -1.35%, reigns supreme in the oil industry, outperforming competitors in profitability. The company declared a staggering $8.6 billion in earnings during the third quarter, leading the pack in cash flow from operations as well, totalling an impressive $17.6 billion.
However, a cloud of uncertainty looms over the oil titan as they've issued a warning about profits for the upcoming fourth quarter. Our investigation digs into whether this should cause alarm or if investors should seize this opportunity to bolster their oil stock portfolio during the profit dip.
Exploring the Fourth Quarter's Turbulence
ExxonMobil and investors are eagerly anticipating the release of its forthcoming earnings report due at the end of this month. The company forecasts earnings of $1.76 per share for the period, far below analyst expectations. Even more concerning, it falls short of the $2.48 posted in the same quarter last year and the $1.92 achieved during the third quarter.
A multitude of challenges plagued the company during the period. The most significant issue arose in refining, as lower margins negatively impacted earnings by an estimated $300 million to $700 million. Timing also worked against the refining business, cutting additional earnings by $500 million to $900 million. Gasoline demand fell short, while new refineries in Asia and Africa flooded the market.
Impairments were another headache for Exxon, with the company expecting to incur roughly $600 million in charges during the period. Lower margins in its chemical business are forecasted to reduce earnings by approximately $400 million.
Yet, the strength of Exxon's upstream oil and gas production business managed to partially counterbalance these challenges. Exxon projects that earnings from this segment will grow by around $400 million, despite a 6% decline in oil prices during the period. A notable boost in the price of natural gas in the U.S. helped to mitigate some of the losses.
Is This a Cause for Concern, or a Buying Opportunity?
Market conditions had a definite impact on Exxon's earnings during the fourth quarter. However, despite the earnings decline, Exxon solidifies its position as an unparalleled industry titan. Moreover, the company has revealed its ambitious 2030 plan, promising to enhance its already top-tier profitability.
The company's 2030 plan aims to deliver an additional $20 billion in earnings and $30 billion in free cash flow by 2030. A number of influential elements will fuel this plan, including:
- Pioneer Synergies: The annual synergies from Exxon's recently closed acquisition of Pioneer are anticipated to be 50% more than initially expected, amounting to approximately $3 billion.
- New Businesses: Exxon predicates the earnings from new businesses, such as lithium, carbon capture and storage, and others, to reach $3 billion.
- Structural Cost Savings: Exxon is beefing up its structural cost savings target by an additional $7 billion.
- High-Return Capital Investments: The company plans to invest $140 billion over the next few years into major capital projects and expanding the Permian Basin. These investments should generate returns exceeding 30% by amplifying high-margin production from advantaged assets and high-value products.
By 2030, Exxon projects surplus cash of $165 billion after covering its investment program. This generous reserve will enable the ongoing increase of its renowned dividend, which has been steadily increasing for 42 consecutive years. Exxon's strategy also opens the door for the repurchase of $20 billion in shares in 2025 and 2026, assuming favourable market conditions.
Such combinations of earnings growth, cash flow expansion, and increased capital returns set the stage for Exxon to generate significant investor value over the coming years. Its strategy will help insulate the company from shifts in commodity prices by amplifying margins, growing earnings from more resilient businesses, and delivering enduring cost savings.
Attractive Investment Opportunity for this Top-Tier Oil Stock
Weak market conditions cut into Exxon's profits during the fourth quarter. This dip in profitability has also caused a notable drop in the stock's price, now sitting approximately 15% below its 52-week high. This decline seems like an appealing buying opportunity for long-term investors, given the wealth of growth awaiting Exxon in its 2030 strategy.
In light of ExxonMobil's anticipated fourth-quarter earnings report, investors might consider this dip in profitability as an opportunity to invest more in its oil stock portfolio, given the company's ambitious 2030 plan to enhance profitability and deliver significant investor value. The plan includes leveraging synergies from the acquisition of Pioneer, expanding into new businesses such as lithium and carbon capture, and increasing structural cost savings.
Given ExxonMobil's strong position in the oil and gas industry and its commitment to increasing its dividend for 42 consecutive years, along with potential share buybacks in the future, the lower stock price could be an attractive investment opportunity for those willing to hold onto the stock for the long term. By following this strategy, investors might capitalize on ExxonMobil's growth potential caused by its 2030 plan, helping to insulate the company from commodity price shifts by amplifying margins and delivering enduring cost savings.
