Is Exxon Stock a Buy Following Q4 Earnings?
When oil prices rise and fall, the stock price of Exxon Mobil (XOM) tends to rise and fall with them, which may be quite volatile. Is it a good time to purchase XOM stock after the company reported strong fourth-quarter results and underwent a reporting restructuring? Take a glance at the stock chart of ExxonMobil to get the solution.
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Exxon announced profits per share of $2.05 on February 1, exceeding analysts’ expectations of $1.95 per share. With $84.97 billion in revenue, the company exceeded expectations by more than 82 percent, but fell slightly shy of the consensus estimates.
Capital expenditures increased to $5.8 billion, which was in line with expectations. According to the corporation, cash flow from operations reached $48 million, representing the highest level since 20212.
Aside from that, the oil major said that it will reorganize into three business groups starting on April 1. For cost-cutting purposes, the chemicals and refining divisions will be merged into a single reporting segment under the new organizational structure. The adjustment will take effect on April 1 of this year. The corporation also aims to transfer its headquarters from Irving, Texas to Houston by the middle of next year.
Exxon Stock Fundamental Analysis
The oil giant, despite the financial hardship brought on by the Covid-19 outbreak, remained committed to its dividend, cutting spending and eliminating employees in order to maintain the payout.
It proposes to purchase back up to $10 billion in XOM stock from shareholders, a move that will return up to $10 billion to shareholders.
During the epidemic, Exxon’s revenues plummeted, as did those of the majority of oil companies.
For the previous decade, Exxon’s yearly sales have been declining significantly. In 2018, the company’s annual revenues fell by more than a quarter. In general, investors should search for firms that have demonstrated consistent quarterly profits and sales growth of at least 25% over the long term.
Is Exxon Mobil Stock a ‘Buy’? That Depends
When it comes to investing in energy companies such as Exxon Mobil (NYSE:XOM), it all comes down to your time horizon. Oil and natural gas prices are expected to remain volatile in the short term, making it impossible to predict the direction the EXXON MOBIL stock in Corporation will trend.
By the end of 2022, it is possible that the shift to electric cars will have a significant negative impact on traditional energy equities.
However, oil and natural gas prices are expected to rise in the medium term, making XOM stock an excellent investment for investors with a time horizon of five to nine months.
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Expect Xom Stock to See Short-term Volatility
For the time being, it appears that the war between Russia and Ukraine has a significant impact on oil and natural gas prices.
I believe that a full-scale Russian invasion of Ukraine is improbable, despite the fact that it is hard to predict how the situation on the Russian-Ukrainian border would develop. Despite the fact that Russia’s President Vladimir Putin (biography) does not have enough forces on the border to achieve this aim, the Russian leader is not interested in a long-term occupation of the entire country.
In addition, Ukraine President Volodymyr Zelenskiy recently made light of the prospect of a Russian invasion, implying that he does not take the possibility seriously.
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Because of this, the most likely outcome over the next month or two is either the continued status quo, extremely limited Russian troop incursions into Ukraine, or some type of agreement between the West, Ukraine, and Russia.
It is difficult to predict how the West will respond in the first two scenarios, as well as the amount to which energy prices would be influenced in the third. If, on the other hand, a deal is reached, energy costs are expected to plummet, bringing the price of XOM shares down with them.
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Within a month or two, it is likely that the Russia-Ukraine war will have faded from the news headlines and will no longer have a significant impact on energy prices. Everyone will most likely have realized at that point that a full-scale invasion is not on the horizon.
At that moment, investors will be able to purchase shares of XOM stock without having to worry about energy prices plummeting immediately afterward.
Furthermore, with the coronavirus epidemic (hopefully) in the rearview mirror, we’ll be in for the mother of all summer driving and travel seasons in most of the world as the summer months approach. A development of this nature, of course, would be positive for Exxon and XOM shares.
Long-Term Consequences for the XOM Stock
Exxon Mobil stock and its competitors face a significant long-term threat from the electric vehicle revolution.
According to the CEO of Chinese electric car manufacturer Xpeng (NYSE:XPEV), by 2025, more than 35 percent of all automobiles sold in China will be “new energy vehicles,” which include completely electric vehicles (EVs) and plug-in hybrid vehicles (PHVs).
For oil businesses operating in the European Union, the scenario might be much more catastrophic. According to a research conducted by Element Energy, the demand for electric cars is expected to surpass that for internal combustion engine vehicles in Europe by early 2025.
It’s very likely that the market will begin pricing the EV threat into XOM shares as early as late 2022.
Summary of the XOM Stock Situation
The Russia-Ukraine war is in a state of flux, and it is possible that energy prices may fall rapidly and substantially during the next month or two as a result. As a result, unless and unless such a scenario plays out, I do not advocate investing in Exxon or any of its competitors during that time period.
Stock pickers who have a time horizon of five to nine months should consider purchasing XOM stock either on a big retreat induced by a resolution of the Russia-Ukraine crisis or when the situation is no longer in the news and thus no longer has an impact on the price of energy. As a result of implementing this plan, you should be able to benefit from the strong demand for oil and natural gas that is expected to emerge beginning in May of this year.
However, because of the danger to oil consumption posed by the transition to electric vehicles, I believe that investors should sell their shares by the middle of the fourth quarter of this year at the latest.