Exxon Mobil: Is There Any Hope?

Exxon Mobil (XOM) announced third quarter ended September 30, 2015 total revenue of $67.3 billion, down 5.7 percent sequentially from $71.4 billion in the second quarter of 2015 and a year-over-year decline of 37 percent from $107.1 billion in the third quarter of 2014.

Exxon Mobil declared third quarter of 2015 GAAP net income of $4.24 billion, a slight sequential increase from $4.19 billion in the second quarter of 2015 but, a significant 47.5 percent year-over-year decline compared to $8.07 billion in the third quarter of 2014.

The key energy company reported continued decline in its top and bottom lines both sequentially and year-over-year primarily due to weaker global crude and energy demand coupled with a slow recovery in the worldwide energy pricing environment.

Some progress        

In addition, earnings for the third quarter were comparable to the second quarter of 2015, driven by reduced upstream earnings which somewhat balanced the impact of reduced corporate costs and superior downstream results.

Liquids volumes enhanced 13 percent to 2.3 million barrels per day for the quarter and allowed by notable growths across Nigeria, Angola, the United States, Indonesia and Canada.
However, natural gas production for the quarter was 9.5 billion cubic feet per day, a decline of 1.1 billion cubic feet per day compared to last year and primarily due to regulatory constraints in the Netherlands and continued decline in the yield at the key fields, somewhat offset by growing project volumes.

Going forward, Exxon Mobil is focused on optimizing its balance sheet by growing its key earnings while minimizing non-core expenditures to successfully increase the key oil and gas productions at the major wells and benefit from the energy sales at improved prices with the steady improvement in the global pricing environment.

Importantly, Exxon Mobil distributed approximately $3.6 billion to its key stakeholders through share repurchases and in form of dividends which includes $500 million of share purchase to lower its shares outstanding. The company offered $0.73 of dividend per share for the third quarter of 2015, up 5.8 percent from $0.69 of dividend per share distributed during the same period last year.

Focus on financial stability                                                               

Exxon Mobil is generating integrated cash flows to support strategic fund investments and distributions. The company is maintaining superior financial flexibility to invest all through the cycle while delivering a notable $7.4 billion year-to-date of free cash flows.

Exxon Mobil is observed to be having a strong financial position developed through superior cost control mechanism and strategic allocation of costs in developmental activities, encouraging the energy company to deliver outstanding shareholder returns.

The consensus estimate among 29 polled investment analysts evaluating Exxon Mobil Corporation suggests investors to hold their position in the company. This consensus rating is maintained since the investment analyst’s sentiments declined on Nov 29, 2013. The earlier consensus estimate suggested that the company will outperform the market.

Conclusion

Overall, the investors are advised to “Hold” their position in Exxon Mobil Corporation looking at the excessive company’s overvaluation with trailing P/E and forward P/E ratios of 17.48 and 20.43 respectively, depicting costlier stock compared to solid industry’s average P/E of 13.72. The PEG ratio of -3.04 indicates no growth but decline compared to notable industry’s growth average of 0.83. The profit margin of 7.69% only seems satisfactory. Moreover, Exxon is debt-burdened with significant total debt of $33.84 billion against weaker total cash position of $4.34 billion only, restricting the company to continue with its operations profitably.
Published on Jan 21, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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