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Exxon Triples Repurchase Plan With Strong Q1 Earnings

Earnings fell just short of market expectations as downstream turned in a weak quarter due to timing effects that should reverse in coming quarters.

ExxonMobil XOM reported another strong quarter with first-quarter adjusted earnings of $8.8 billion, up from $2.8 billion a year ago. Adjusted earnings exclude a $3.4 billion aftertax impairment charge related to the Russia Sakhalin-1 operation, which the company plans to exit. Earnings fell just short of market expectations as downstream turned in a weak quarter due to timing effects that should reverse in coming quarters as Exxon capitalizes on the strong refining environment.

As we expected it eventually would do, Exxon increased its share-repurchase program to $30 billion through 2023 ($2.1 repurchased in the first quarter) from $10 billion, as debt has fallen to within management’s target range of 20%-25%, at 21%. The increase places Exxon’s shareholder returns at the upper end of its peer group and further supports our preference for it among the integrated oils. Our fair value estimate and narrow moat rating are unchanged, leaving the shares trading at an attractive discount; the current price doesn't not fully appreciate the coming uplift in earnings and cash flow over the next five years, in our view.

Upstream adjusted earnings increased to $7.7 billion from $2.6 billion last year on higher commodity prices. Production fell to 3,675 thousand barrels of oil equivalent per day from 3,787 mboe/d a year ago. Permian production reached 560 mboe/d in the quarter and remains on track to grow 25% from 2021 for the full year. Downstream earnings improved to $332 million from a loss of $390 million last year on stronger margins and improved reliability. Market margins continue to improve and are now at the upper end of the 10-year historical average. Continued improvement since the end of the first quarter implies stronger downstream earnings in later quarters. Chemical earnings were down slightly from last year to $1.4 billion on higher maintenance. Operating cash flow of $14.8 billion improved from $9.3 billion last year and covered capital spending and the dividend.

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Allen Good

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Allen Good, CFA, is a director for Morningstar Holland BV, a wholly owned subsidiary of Morningstar, Inc. Based in Amsterdam, he covers the oil and gas industries. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar.

Before joining Morningstar in 2008, he performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

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