Exxon is saving its funds

The company reports its first-quarter figures on Thursday 30 April, and the downstream operation will be crucial to its performance. 

An Exxon filling station
Source: Bloomberg

The firm bucked the trend by increasing its production of oil in the US at the back end of last year, even though the price of the commodity collapsed. It seems unusual that Exxon would increase oil production in an era when prices are at multi-year lows, but then again it is the largest oil company in the world and it can cope well with low prices.

Saudi Arabia hasn’t trimmed its output of oil, and the market is speculating that the Saudi’s are deliberately keeping the price low to squeeze out smaller oil producing nations. Exxon Mobil could be using its muscle in the energy industry to do something similar to smaller rivals.

Not only does Exxon have the size to withstand a depressed oil market it also has a substantial downstream business which benefits greatly from low oil prices. To some extent, the company, as a whole, is internally hedged by any movements in the oil market, as the decline in revenue in the exploration business is offset by increased income from the refinery business.

In the final quarter of 2014, the company experienced a 21% drop in profits, and to save cash it reduced its share buyback scheme. When there is turmoil in the oil market the luxury of a share buyback is the first on the chopping block.

At the end of last year the company’s cash reserves dropped to its lowest levels since 2009. By conserving its liquid assets it could mean Exxon is keeping its eye out for possible takeovers.

The oil and gas industry has witnessed some M&A activity as I stated in my Halliburton article, and when share prices are under pressure that is when opportunities come knocking.

When Exxon reveals its first-quarter numbers, the consensus is for revenue of $54.65 billion and EPS of 82 cents. Exxon’s fourth-quarter numbers were well received, and revenue came in at $87.27 billion and EPS was $1.56, while the market was expecting $88.66 billion and $1.33 respectively. The oil company will post its final-year figures in January 2016, and analysts are anticipating revenue of $253 billion and EPS of $3.7. These forecasts represent a 38% drop in revenue and 51% drop in EPS.

Equity analysts are bullish on Exxon, and out of the 29 recommendations, ten are buys, 16 are holds, and three are sells. The average target price is $93.65, which is 7.1% above the current price. Investment banks are also bullish on Chevron, and out of the 29 ratings, ten are buys, 17 are holds, and two are sells. The average target price is $112.89 which is 3.4% above the current price.

Since Exxon revealed its fourth-quarter numbers in January, the number of short positions on the stock has increased by 2.5%.

The 50-hour moving average (MA) is providing support at $86.42; if that level is held the resistance in the $88.20 region will be the initial target – if that hurdle is cleared, then $90 will be in sight. A drop below the 50-hour MA will bring the support at $84 into play.

Exxon is available for extended hours trading.

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