Weak oil prices to dent Exxon

ExxonMobil is due to post its fourth-quarter results on Monday 2 February.

An Exxon sign
Source: Bloomberg

The expected earnings per share are called down at $1.345, falling from last quarter’s $1.89. Sales are also expected to be softer at $88.669 billion down from $107.49 billion. These factors will contribute to the pre-tax profits dropping to $8.75 billion from $13.41 billion.  

Driven by the crashing price of oil, institutional analysts have mixed opinions as to where fair value for the company is, and as such the message is far from clear. Of the institutions rating Exxon, 13 have it as a buy, 16 as a hold and three as a sell. The average price target over the next 12-months is $97.21, and at the time of writing this still offers an 8.3% premium to the current share price of $89.71

At the end of June 2014 Brent crude was trading at $115 a barrel and it is now at $48.87. This 57.5% drop has subsequently seen pressure mounted on oil and gas manufacturers and producers; however, Exxon has fallen by less than 15%, partly because there are two parts to its business. The extraction business has seen profit margins squeezed, bringing into question the financial viability of some of its operations. The refining arm of the business, on the other hand, has found these low prices beneficial as the previous quarter saw almost $1 billion in profit, a 73% increase year on year.

The last five months have seen the moving averages resist any moves higher, and the 50-day moving average at $92.08 is the first hurdle to clear, with the 100-DMA of $93.40 not too far above. Regardless of how beneficial the low oil prices might be to the refinery the net effect is still negative to the firm. It may well take a seismic shift in oil demand to change this negative stance in the company.

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