Exxon Mobil Earnings: Decline Largely Expected, but Long-Term Outlook Unchanged

Exxon Mobil Stock at a Glance

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

Exxon Mobil Earnings Update

Exxon Mobil’s XOM second-quarter earnings fell slightly short of market expectations, but its underlying strategic progress continues, leaving the firm’s long-term outlook intact. Our fair value estimate and narrow moat rating for the company are unchanged. With shares off their all-time high set earlier this year, we find its valuation compelling.

Exxon continues to stand apart in the integrated space, given its potential for cash flow growth during the next few years, which is the result of new projects and cost savings. Meanwhile, the company is quickly advancing its low-carbon business, as evidenced by its recent deal to purchase enhanced oil recovery/carbon capture-focused Denbury.

Second-quarter adjusted earnings fell to $7.9 billion from $17.6 billion the year before, largely on lower oil and gas prices, as well as weaker refining and chemical margins. The previous year saw these figures well above their historical levels. Chemical margins were and remain below historical averages. Cost savings also contributed, as Exxon has now delivered $8.3 billion of savings since 2019, and it is on track to achieve its $9 billion target by year-end.

Production fell to 3,608 thousand barrels of oil equivalent per day, compared with 3,732 mboe/d a year ago. Excluding government-mandated curtailments, divestments, and the Sakhalin-1 expropriation, production grew nearly 160 mboe/d thanks largely to the Permian Basin and Guyana, both of which grew by over 20% from the previous year and set record levels during the quarter. With growth in these high-margin areas and divestment of lower-margin assets, Exxon is improving upstream earnings capacity without absolute volume growth. These two growth pillars are unmatched by peers.

During the quarter, Exxon paid dividends of $3.7 billion and repurchased $4.3 billion of shares. It still expects to repurchase about $17.5 billion in 2023. Net debt/capital increased slightly to 5% at the end of the quarter, but it remains at the low end of the company’s peer group.