Exxon Earnings: Firm Tops Expectations as Underlying Improvements Take Hold

Key Morningstar Metrics for Exxon Mobil

• Fair Value Estimate: $123.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Exxon Mobil’s Earnings

Exxon Mobil’s XOM fourth-quarter adjusted earnings fell to $10 billion from $14 billion the year before, but they still exceeded market expectations. The decline was largely attributable to lower oil and gas prices and weaker refining margins. Adjusted earnings exclude a $2 billion impairment charge related to assets in California, where regulatory hurdles have prevented operations from restarting.

Exxon finished the year by delivering $9.7 billion in structural cost savings, exceeding its $9.0 billion goal and placing it on track to achieve its $15.0 billion target by 2027. Year-over-year production was flat including divestments (largely lower-quality U.S. unconventional gas), but the firm increased volumes from high-margin Guyana and the Permian by 18%. This high-grading of the portfolio contributed $1 billion in earnings in 2023 and should continue over the next few years, improving the company’s earnings power and underpinning a key tenet of its investment thesis.

For the full year, Exxon paid dividends of $14.9 billion and repurchased $17.4 billion in shares, in line with guidance. Repurchases, currently paused, will resume after the Pioneer Natural Resources shareholder special meeting. Exxon expects to close this acquisition in the second quarter. We have already incorporated the impact into our model, keeping our $123 fair value estimate unchanged. Exxon continues to trade at a meaningful discount to our valuation.

Exxon remains our preferred integrated oil company thanks to its earnings growth potential, which is based on a combination of high-quality asset additions and cost savings. These should ultimately lead to a stronger competitive position and greater shareholder returns.