Exxon Earnings: Dividend Raised 4%; Commodity Price Drop Hits Results, but Outlook Intact

Key Morningstar Metrics for Exxon

• Fair Value Estimate: $118.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Exxon Earnings

Exxon’s XOM third-quarter earnings fell just slightly short of market expectations as adjusted earnings fell to $9.1 billion from $18.7 billion the year before. Earnings fell across all segments on lower oil and gas prices and weaker refining and chemical margins. Natural gas prices registered the largest declines, falling from levels well above historical ranges the year before, while chemical margins remained below historical ranges.

During the quarter, Exxon achieved its $9 billion structural cost-savings target ahead of schedule. Production fell to 3,688 thousand barrels of oil equivalent per day compared with 3,716 mboe/d a year ago. Excluding government-mandated curtailments, divestments, and the Sakhalin-1 expropriation, production grew nearly 80 mboe/d thanks to continued growth in the Permian and Guyana.

Exxon Raises Dividend

During the quarter, Exxon paid dividends of $3.7 billion and repurchased $4.4 billion in shares. It also increased its fourth-quarter dividend by 4% to $0.95/share and still expects to repurchase about $17.5 billion in 2023. Our $118 fair value estimate and narrow moat rating are unchanged.

Outside the dividend increase, the quarter proved relatively unnewsworthy considering the Pioneer Resources acquisition announcement a couple of weeks ago. Management plans a corporate plan update in early December where we expect they will provide greater detail on near-term financial items such as capital spending and shareholder returns as well as updates on key projects. However, we do not expect any deviation from the existing strategy or outlook.

Shares have fallen to nearly 10% below our fair value estimate in the wake of the Pioneer announcement, opening an opportunity in our view. A further decline in commodity prices remains a risk, but we continue to think Exxon holds the most compelling investment case among integrated oils given its asset quality and growth outlook.