ExxonMobil’s (NYSE: XOM) price action is not immune to the broad-market selloff, but operational quality, growth, and capital return point to a buy-the-dip opportunity. Exxon’s operational quality is improving due to efficiency efforts, modernization of its operations, and the impact of the Pioneer acquisition, which is not fully felt.
The Pioneer acquisition closed faster than anticipated, driving larger-than-expected synergies impacting Exxon’s bottom line. The takeaway for investors is that these factors, plus budding new businesses in carbon capture, lithium, and specialized petrochemicals, have the company set up to drive value and return industry-leading amounts of capital over the long term.
ExxonMobil has a Record-Setting Quarter
ExxonMobil had a record-setting quarter. The only bad news is that the YTD totals are still down compared to last year, but that is offset by a 12% YoY and sequential quarterly growth driven by strengths in all segments. The upstream, oil-producing segment led, with a gain of 15% due to record production in legacy Permian and newer Guyanese assets. The acquisition of Pioneer aided the growth, which included the highest quarterly production rate since the ExxonMobil merger. Revenue also outpaced the consensus estimate by nearly 400 basis points, and the earnings news is better.
The company’s efforts at efficiency and synergies related to Pioneer resulted in wider margins despite pricing pressures and refinery margin contraction. The takeaway is that refinery margins are back within their historical range, and oil prices are steady within a range, if not trending higher, driving robust cash flow for this and other energy companies. Exxon reported an industry-leading $9.2 billion in earnings, including a $0.5 billion contribution from Pioneer from only two months of operations that left the GAAP EPS at 2.14 or $0.12 ahead of the consensus.
The cash flow and balance sheet highlights are favorable to investors. The company logged a reduction in cash offset by increased investments, total assets, and debt reduction. Liabilities are up following the Pioneer acquisition but less than assets, leaving shareholder equity up by 30%. Cash flow and the balance sheet allowed for robust capital return, which included $4.3 billion in dividend payments and $5.2 billion in repurchases. Repurchases in Q1 amount to 1% of today’s market cap and only failed to reduce the count because of the all-stock Pioneer acquisition deal structure. Barring additional mergers, the share count is expected to fall over time now that the acquisition is completed.
Analysts Revise Exxon Price Targets: Forecasting an 18% Upside
The analysts' response to Exxon’s results is good, although the price target revisions are mixed. The revisions tracked by MarketBeat.com include several increases and decreases but no change to the consensus target of $135 or the Moderate Buy rating. The salient detail is that analysts' consensus is firming around the $135 target, which implies an 18% upside for this market and a new all-time high. A move up to set a new all-time high is significant because it will likely trigger an inflow of fresh capital that will help drive the price action higher.
Institutional activity may also provide a tailwind for this market. The action was mixed in 2024, but it was bullish on balance and bullish in Q1 and the first month of Q3. Assuming this trend continues, the price action in XOM should be able to hit a new high soon. Price action following the Q2 release is also mixed, showing resistance and support at critical levels. The takeaway is that this market is winding up for a move likely to the upside. The critical resistance point is near $120, a move above which would bring a target of $140 into play. That target is derived by adding the $20 trading range magnitude in 2023/2024 to the breakout point, a target that coincides with the analysts' consensus estimate.
