Why Exxon Got Punished For Great Earnings

We couldn’t help but notice the lack of interest surrounding Exxon Mobil Corp.’s (XOM) latest quarterly earnings.

Both retail and financial pro search volume for the oil giant barely budged off its averages.

TrackStar data is as much about what we don’t see as what we do see.

So, we were surprised when the search volume didn’t change.

Quarterly earnings of $2.83 per share beat consensus by $0.23, while revenues of $86.56 billion missed by $3.51 billion.

So how does a company that now trades at 7.7x forward operating cash flow not generate any interest?

The answer might surprise you.

Exxon Mobil’s Business

As an integrated oil and gas company, Exxon Mobile engages in upstream exploration and drilling, midstream transportation, and downstream refining and marketing.

The integrated approach creates corporate performance stability since the results of each segment aren’t highly correlated. Plus, the company gains operational efficiencies.

For example, upstream operations live and die by the price of crude oil. Midstream makes money on transportation volume. Downstream operations rely on the spread between input raw materials, output prices, and total volume.

It’s worth noting that Exxon has embraced climate change initiatives, working towards net zero emissions by 2050 through a combination of operational efficiencies, carbon capture and storage, as well as biodiesel investments.

The roadmap below is the initial plans through 2030.

Source: XOM Investor Relations

Financials

Source: Stock Analysis

Before the pandemic, Exxon struggled with inconsistent revenues and margins.

After a major pullback from Covid, the revenues and profits surged to their highest levels in years.

Yet, the latest quarter saw revenues decline 4.7% YoY due to lower oil prices, while production increased by 4.2%. This same push on volume and pull on prices is expected to continue throughout the entire year.

Meanwhile, the company continues to lower its debt, with net debt dropping from $17.3 billion to $8.8 billion in the latest quarter as total debt dropped from $46.9 billion to $41.4 billion.

Valuation

Source: Seeking Alpha

Exxon is cheap in terms of price-to-earnings (P/E) ratio looking backward but is the most expensive looking forward.

It’s also the second most expensive for price-to-sales and price-to-cashflow.

Of the other companies, Petrobras (PBR) and British Petroleum (BP) are the cheapest, followed by Suncor Energy (SU).

Growth

Source: Seeking Alpha

Exxon’s forward revenue growth isn’t spectacular compared to its peers though its forward EBITDA is fantastic.

However, it’s done well in terms of total growth in revenues and profits over the last several years.

Profitability

Source: Seeking Alpha

We thought it was interesting that Exxon’s gross margins aren’t the top here nor are its EBIT margins.

Given the size and operations, one would expect better outcomes.

Still, it has a decent return on equity, assets, and total capital, though not the best in any category.

Our Opinion 6/10

We’re a little more cautious here on Exxon Mobil, though not energy as a whole.

Oil prices have stagnated, leaving the company to make it up on volume with no pricing upside.

Amongst its peers, it’s not the top player. Therefore, we’re giving it a slightly lower than usual rating given these headwinds and relative value.

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