Is Exxon Stock A Sell Despite Q2 Earnings Beat?

Exxon Mobil‘s (XOM) reported better-than-expected second quarter earnings on July 30. But as the Delta Covid-19 variant sweeps the U.S. demand for oil is falling. So is Exxon stock a sell? Take a look at Exxon earnings and the XOM stock chart.




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As Covid-19 worries weigh on oil prices, climate change has been front and center for Big Oil following Exxon’s shareholder meeting on May 26. Activist investor Engine No. 1 gained ground in its fight to get the U.S. oil major to take a more proactive approach to climate change, which it believes will have major ramifications for Exxon stock.

The hedge fund wants Exxon to pledge to reduce its emissions to net-zero by 2050 and replaced three board members with its candidates. Greg Goff, ex-CEO of refiner Andeavor, environmental scientist Kaisa Hietala, and Alexander Karsner, a strategist at Google’s Alphabet (GOOGL), will join the 12-person board.

Darren Woods was re-elected CEO, though he likely will face more pressure to act on a climate-change agenda. The board shake-up is expected to have major ramifications for Exxon stock in the future.

The wins come as one of the company’s top lobbyists was caught on camera saying that Exxon helped fund groups to stop the government from enacting climate change initiatives.

CEO Darren Woods pushed back saying that the lobbyist’s comments were “entirely inconsistent with our commitment to the environment.”

Exxon Stock Fundamental Analysis

Exxon reported Q2 EPS of $1.10, beating views by 9 cents as revenue more than doubled to $67.74 billion, above forecasts for $64.64 billion. Oil-equivalent production fell 2% to 3.6 million barrels per day. Production in the Permian Basin jumped 34% to 400,000 oil-equivalent bpd.

Upstream operations had an income of $3.2 billion vs. a loss of $1.65 billion a year ago. But downstream operations swung to a loss of $227 million from an income of $976 million. Income from chemicals shot up to $2.3 billion from $467 million.

Exxon has remained committed to its dividend even amid pressures during the Covid-19 pandemic, slashing spending and jobs to protect the payout.

ExxonMobil world headquarters
(Katherine Welles/Shutterstock)

In December, Exxon slashed its five-year spending plan. The company now plans to spend $20 billion-$25 billion a year between 2022 and 2025. That’s down from a prior forecast for an annual investment of $30 billion during the same period.

Exxon earnings have stagnated at 0% over the last three years, according to IBD’s Stock Checkup. On the revenue side, Exxon’s three-year growth rate has fallen 14%. Investors generally should look for stocks with sustained earnings and sales growth of at least 25%.


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Exxon Stock Technical Analysis

Exxon earnings — and XOM stock — tend to rise and fall with crude oil prices, which can be highly volatile.

U.S. oil prices have climbed past the key $70 per barrel benchmark for the first time since October 2018, joining the global benchmark Brent. But industry watchers are also concerned about slowing economic growth as the highly infectious Delta Covid-19 variant spreads.

A flat base with a 64.12 buy point failed, according to MarketSmith chart analysis, after a prior breakout from a prior 62.65 buy point also failed.

XOM stock is currently down more than 8% from its last buy point and is trading below the 10-week line. Both are sell signals.

The relative strength line, which tracks a stock vs. the S&P 500 index, has been drifting lower since June.

The Accumulation/Distribution rating of D- indicates more selling than buying of XOM stock by institutional investors.

The recent stock action marks another sign in its recovery since last year, when oil collapsed and Exxon stock was replaced by Salesforce (CRM) on the Dow Jones Industrial Average in August, after over 90 years.

Meanwhile, OPEC+ began increasing its production quotas in January as demand rose with the coronavirus vaccine rollout. The group then continued loosening its output curbs in May even as Covid-19 rates soared in India, a major energy market.

But OPEC+ hit an impasse in July, failing to reach an agreement to boost their production quotas. The full ministerial meeting was delayed before being abandoned as the group failed to give in to the UAE’s demands to recalculate its quota. The group finally reached an agreement after OPEC+ agreed to gradually end the remainder of production curbs that began last year.

Exxon stock has a weak IBD Composite Rating of 66 out of 99 and a 61 EPS Rating.

As with other oil stocks to buy and watch, Exxon stock will rise and fall with crude oil prices. So even when Exxon looks good based on fundamentals and technicals, crude oil prices may suddenly plunge, taking XOM stock down too.

Investors could choose to buy an energy exchange-traded fund as a way to play sector moves while avoiding stock-specific risk. Energy Select Sector SPDR Fund (XLE) and iShares U.S. Energy ETF (IYE) are two energy-related ETFs. But those ETFs are still exposed to crude oil price swings.


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Exxon Mobil Shale Investments

As demand shrinks, independent U.S. shale companies are scaling back spending to stay within their balance sheets, leaving the door open for oil majors.

Exxon became a bigger shale player with a $5.6 billion deal in 2017 to double its oil and gas holdings in the Permian Basin.

Exxon is in the midst of asset sales that could reach $25 billion through 2025, across Europe, Africa and Asia as it looks to free up more capital to invest in the Permian Basin and massive projects like an oil field in Guyana.

Rivals are moving in to expand shale holdings. In July 2020, Chevron announced it was buying oil and gas producer Noble Energy in an all-stock deal valued at $5 billion. Noble has 92,000 acres in the Delaware Basin of the oil-rich Permian.

And in October 2020, ConocoPhillips (COP) agreed to buy Concho Resources in an all-stock deal valued at $9.7 billion, creating the biggest independent U.S. oil producer.

But a potential blockbuster merger could be possible. Exxon and Chevron executives were in preliminary talks for a merger in the early days of the Covid-19 pandemic, sources told the Wall Street Journal. The talks aren’t currently ongoing, but the sources told the Journal the discussions could be revisited in the future.

Shale stocks are also merging. Pioneer Natural Resources (PXD) reached a deal in October to buy Parsley Energy for $4.5 billion in stock.

Meanwhile, rival oil majors like BP (BP) and Royal Dutch Shell (RDSA) are making large cuts and shifting away from fossil fuels.

Shell is even reportedly considering selling its Permian Basin assets as the industry faces pressure to address climate change.


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Is Exxon Stock A Buy?

Another XOM stock buy point has failed. Oil prices have stalled recently over worries of slowing economic growth even as OPEC+ has failed to reach a deal to boost production quotas.

Bottom line: Exxon stock is not a buy and has entered sell range.

Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.

Follow Gillian Rich on Twitter for energy news and more. 

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Roy Walsh

Roy Walsh

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