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Exxon is struggling due to oil price

The collapse in the price of oil is having a negative impact on Exxon’s upstream business, but the downstream operation is benefiting from it.

Exxon
Source: Bloomberg

Exxon will announce its fourth-quarter results on 2 February, and traders are expecting revenue of $51.81 billion and earnings per share of 64 cents. That compares with third-quarter revenue and EPS of $67.34 billion and $1.01 respectively.

The company will reveal its full-year figures on the same date, and investors are expecting revenue of $253 billion and EPS of $3.82. These forecasts equate to a 38.4% fall in revenue and a 49% drop in EPS.

Earnings at Exxon are falling as the slump in the oil market is taking its toll on the energy titan. To some extent, the company is cushioned from the weak energy market. Its refining and chemicals businesses are performing well in this environment, as crude oil is a raw material for the downstream division.

The firm is keeping an eye on costs and spending is under its own forecast. While the rout in global commodity markets persists, companies must focus on efficiency, and industry leaders like Exxon can weather the storm better than its smaller rivals. 

Respectable dividend

 

Trailing 12M

price/earnings
Forward 12M price/earning Price/book value Dividend yield 5 year dividend growth
Exxon 15.65 25.55 1.8 3.95% 10.6%
Chevron 16.30 24.02 0.98 5.29% 8.55%
ConocoPhillips 944.23 N/A 0.96 8.65% 6.46%
S&P 500 16.85 15.49 2.54 2.34% N/A

 

Exxon’s forward-looking price to earnings ratio indicates a drop in future earnings. The company is overvalued when compared with its peers, but is relatively good value when compared with the wider market. The dividend yield from Exxon is respectable, and the dividend growth rate is impressive.

Earnings vs estimates

Over the past two years, Exxon has an 87.5% track record of beating quarterly revenue forecasts. In terms of EPS, it has a 62.5% track record of exceeding it. Volatility in the share price after the announcement can be expected. We have seen on average a 2.2% move on the back of the results being released, but only 37.5% of the moves have been positive.

Shorting tapers off

Since announcing its third-quarter figures in October 2015, the share price has declined by 8.8%, and short positions increased fractionally. Over that past year, the number of short positions on Exxon increased by 29%, and the shares fell by 18.5% during that time.

Brokers are bullish

 

Buy ratings

Hold ratings Sell ratings
Exxon 9 14 5
Chevron 15 12 1
ConocoPhillips 15 12 1

 

Equity analysts are bullish on Exxon, but the stock has the lowest percentage (32%) of buy ratings, and the highest percentage (17.8%) of sell ratings attached to it from the group. Investment banks have an $82.20 price target for Exxon, and this is 11% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG

Following on from a difficult end to 2015, which saw 15% wiped off the company’s share price in November and December alone, Exxon’s share price has become increasingly choppy and unpredictable in 2016. However with last week’s resurgence, traders are wondering whether buyers will regain the upper hand and push this company into calmer water once more.

A strong rally yesterday ran into resistance at $76.96, falling back down to a cluster of key intraday moving averages. The recent regular convergence of the 50-, 100- and 200-hour simple moving averages points to a stock with highly indecisive and erratic price action. Traders are looking for a breakout of the current consolidation zone between $76 and $75.30 to ascertain the direction of the next move.

An hourly close below $75.30 will bring a more bearish view, with $73.29 and $71.55 representing the next major support levels in view. A close above $76 will point to further gains, with $76.96 and $78.40 the next major resistance levels to reach. 

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