Morningstar

ExxonMobil Earnings: Growing Production and Cost Reductions Help Mitigate Lower Commodity Prices

We think the market is not fully crediting Exxon with its 2030 targets.

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Securities in This Article
ExxonMobil Holdings Corp
(XOM)

Key Morningstar Metrics for ExxonMobil

ExxonMobil’s XOM second-quarter earnings surpassed market expectations, falling to $7.1 billion from $9.2 billion a year ago, mainly on lower oil prices and refining margins. But strong volume growth, further structural cost reduction, and contributions from new projects mitigated the impact of lower prices.

Why it matters: Exxon aims to differentiate itself from its peers via greater earnings and cash flow growth potential. The quarter provides evidence that the key tenets of its plan are progressing and ultimately increasing its earnings capacity.

  • Production of 4.6 million barrels of oil equivalent per day was higher by 1.7% from the first quarter. Management noted this was the highest second-quarter mark since the Exxon-Mobil merger 25 years ago. Exxon plans to produce 5.4 mmboe/d in 2030.
  • Structural cost reductions totaled $1.4 billion year to date, reaching $13.5 billion cumulatively since 2019, and on track to reach the goal of $18 billion by 2030.

The bottom line: Our narrow moat rating and $135 fair value estimate are unchanged, leaving the shares trading at nearly a 20% discount. We think the market is not fully crediting Exxon with its 2030 targets, including return levels, given concerns about delivery, capital discipline, and future commodity demand.

  • We see the path as highly achievable and expect management to deliver. We rate the probability of repeating past missteps in the chase for growth as low. Meanwhile, Exxon’s portfolio and growth opportunities are of higher quality than in the recent past.
  • Although Chevron now has a Guyana stake as well, one key difference is Exxon’s Permian strategy. While Chevron is moving toward flat production and harvesting cash flow, Exxon is planning for growth to and beyond its 2030 target of 2.3 mmboe/d.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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