Why Now Is the Time to Buy ExxonMobil

ExxonMobil (XOM) is one of my favorite dividend aristocrats. While the likes of McDonald’s, IBM, and Wal-Mart are struggling, ExxonMobil has depreciated in value due to the recent crash in oil prices. With oil prices considerably lower than last year’s level, I don’t think there’s more room for prices to fall.

Lower prices have led to an increase in demand of oil prices, and with demand increasing; I expect the prices to move higher soon. An increase in crude prices will definitely push energy stocks higher, and ExxonMobil is my favorite pick from the lot.
In the latest reported quarter, ExxonMobil reported earnings per share of $1.01, $0.12 more than the consensus estimate of $0.89. The company’s revenue of $67.34 billion was also ahead of the analysts’ estimate of $63.75 billion.

Exxon's shrewd strategy

Over the prior year, oil prices are down approximately 50%, where some oil manufacturers are merely trying to stay alive. Whereas, ExxonMobil comes in the list of elite class oil companies that are booming in the recent environment because they are producing free cash flow while managing to cultivate their production.

Oil prices are currently hovering around $40 per barrel. Declined oil prices created an adverse impact on the company’s stock price, with its shares down nearly 9% in the past few days. Although, from a long term perspective, Exxon still remains a good investment. The company has enough cash to survive the recent oil crash. Moreover with many companies struggling to survive in the weak oil environment, ExxonMobil will swoop in to acquire many companies that are faced with bankruptcy.

The reason behind company’s performing well despite weak oil market is that the company is focused on conserving cash flow and reducing costs as much as possible by assimilating operations.

Exxon has belligerently reduced costs. The company has accomplished a total reduction of $8 billion in capital and cash operating costs this year. Furthermore, the company also reduced its 2015 capex by $4.5 billion, as compared to last year. ExxonMobil has also achieved a 10% drop in unit prices in its strenuous business.

Moreover, in order to surge its productivity and aim the opportunity in the end market, ExxonMobil is taking steps to escalate capacity in definite areas. For illustration, in Papua New Guinea, the company has increased the gross capacity of its LNG project from 6.9 million to 7.3 million tons on a year basis. Therefore, regardless of concentrating on cost reduction, Exxon has not lost sight of the prospect available in certain areas.

Conclusion

Being the leader in the segment, ExxonMobil will undoubtedly profit from recovery in crude. The company has enough cash to survive the crash and acquire other bankruptcy-threatened companies. Hence, I think Exxon is a strong buy at this point in time.
Published on Dec 1, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

Posted in ...