On Mar 7, 2014, we issued an updated research report on ExxonMobil Corporation (XOM). The company posted fourth-quarter 2013 earnings of $1.91 per share, beating the Zacks Consensus Estimate by a penny. The beat came at a time when a sharp drop in refinery utilization rates hurt the fortunes of refiners. Exxon’s outperformance was backed by higher natural gas prices. However, earnings per share fell 13.2% from $2.20 in the year-ago quarter. Total revenue decreased 3.3% year over year to $110.9 billion, and also came below the Zacks Consensus Estimate of $114.9 billion.
ExxonMobil is the world’s best run integrated oil company given its track record of superior return on capital employed. As the largest publicly traded oil company, ExxonMobil has long been a core holding for investors seeking a defensive name with continued dividend growth.
ExxonMobil is fairly active in its investment program. The company plans to spend about $185 billion over the next five years — up 29% from the last five-year period. The capex covers as many as 21 important oil and gas projects currently under the anvil and are estimated to accumulate over 1 million net oil-equivalent barrels per day by 2016.
Free cash flow generation remains strong, and the company is consistently returning it to shareholders. It increased its dividend in Apr 2013 at an annualized $2.52 per share, up 10.5% sequentially and yielding an attractive 2.69%. The company also has a solid share buyback program in place.
The company boasts of diversified operations across the world with several new projects expected to come online through 2014. While Exxon functions in all corners of the globe, the main areas of focus for the coming years include the U.S., Canada, Kazakhstan, West Africa, Australia, Russia, Angola and Iraq for new volumes. On the exploration front, the company’s focus includes unconventional natural gas across North America as well as offshore regions, including the Gulf of Mexico. Notably, Exxon achieved success in the exploration of a well offshore Tanzania, where it came across a massive amount of recoverable gas of high quality.
We however remain skeptical due to the company’s sharp drop in refinery utilization rates during the fourth quarter. Owing to lower crack spreads and narrowed crude oil differentials, fortunes of refiners industry wide went southward. In the fourth quarter, ExxonMobil's refinery throughput averaged 4.5 million barrels per day (MMBPD), down 8% from the year-earlier level of 4.8 MMBPD. As a result, the segment recorded profit of $916 million against $1.8 billion in the year-ago quarter.
Key Picks from the Sector
ExxonMobil currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players in the energy sector like Patterson-UTI Energy Inc. (PTEN), Helmerich & Payne Inc. (HP) and Warren Resources Inc. (WRES). All the stocks sport a Zacks Rank #1 (Strong Buy).
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