Exxon Mobil Corporation (NYSE:XOM) just published its second-quarter financial results and smashed them. Nonetheless, Exxon Mobil’s stock is still trading below its 52-week high established in June. The stock has fallen 15% in tandem with crude oil, which is down roughly 10% for the month as of this writing.
Nonetheless, the technological setup appears to be quite promising. The stock has lately broken above the 50-day simple moving average (“sma”), and a very strong trend reversal indicator, the cup and handle configuration, has been met. I anticipate a significant move to the upside, with the potential to break above the previous 52-week high. My current price goal is $110, or a 16% increase. In the next section, I present my bull argument for your consideration.
Exxon Mobil Q2 2022 earnings results
Exxon Mobil increased earnings per share by $0.29 to $4.14 and increased sales by $3.62 billion. Exxon Mobil Corporation forecasted earnings of $17.9 billion in the second quarter of 2022, or $4.21 per share assuming dilution. The sale of the Barnett Shale Upstream assets resulted in a valuable identifiable item of over $300 million in the second quarter results. Capital and exploration spending totaled $4.6 billion in the second quarter of 2022 and $9.5 billion in the first half of 2022.
Cash management review
Strong earnings drove increased cash flows from operations. Exxon Mobil returned $7.6 billion to shareholders, almost half of which was in dividends and the rest in share repurchases, in line with the oil giant’s prior policy. Exxon announced a significant expansion of its share repurchase program, increasing it to $30 billion in total until 2023. In its December Corporate Plan Update, Exxon Mobil indicated that it plans to buy back $10 billion shares. This decision demonstrates Exxon Mobil’s confidence in the soundness of its balance sheet and future earnings prospects.
The second quarter CAPEX of $4.6 billion was in line with the $21 billion full-year target. The truth is that while this quarter’s results are crucial, the future outlook will determine whether the stock price rises or falls. Let’s look at what’s in store for the company right now.
What Lies ahead for Exxon Mobil?
Guidance
For the second consecutive year, we aim to reach a 25% production increase in the Permian. Our total capacity in Guyana is currently over 340,000 oil-equivalent barrels per day.
Exxon’s significant expenditures over the last many years have placed the business in an excellent position to deliver higher output when the world needs it. The Texas oil behemoth continues growing low-cost barrel production in Guyana and the Permian while optimizing output from existing facilities. Exxon’s new Corpus Christi complex was cash and profits positive in the first half of the year.
According to the business, the start-up of the Beaumont refinery expansion project in the first quarter of 2023 will enhance the US Gulf Coast refining capacity by about 250,000 barrels per day. Two more LNG projects are also in the works. Coral LNG and Mozambique will deliver the first cargo in the second part of this year. The Golden Pass LNG project will provide 18 million tons of fresh LNG supplies annually and is still on track to begin operations in 2024. Golden Pass, when finished, will increase LNG from the Gulf Coast by 20%.
Fundamental review
To begin with, given the current price, Exxon is essentially trading for a song. Exxon’s forward P/E ratio of 8.63 is almost half the current S&P 500 ahead P/E ratio of 18. The company has a meager PEG ratio of 0.41; anything less than one is considered grossly cheap. Finally, the Texas oil behemoth generates free cash flow ($20 billion in cash flow from operations last quarter). It sells at around 11 times free cash flow, with anything less than 15 times deemed cheap. Furthermore, Exxon Mobil is rated as a Strong Buy by Seeking Alpha, with A ratings for growth and profitability.
Now, let’s summarize the most important investor takeaways.
Key investor takeaways
The following slide summarizes the major takeaways for the future. The basic truth is that the oil behemoth is well-funded and well-positioned to flourish in the current climate. The downstream refining activities are unrivaled; I regard this as their card in the hole or up their sleeve. In any case, Exxon Mobil now owns all of the cards. Exxon’s management is transforming the firm from a holding company to an operating company to better serve its customers’ changing requirements while increasing long-term shareholder value.
I believe the stock will surpass its all-time high as the supply/demand mismatch tightens more in the coming months. Based on underinvestment in production, China’s return to production, the already tight supply/demand mismatch, a brief and transitory recession, and the conclusion of the SPR release, I am confident that oil will rise or at least retain this level for the foreseeable future. Many people have overlooked that we will need to replenish the SPR release at some time. This will put even more significant strain on supplies.
I believe this is a fantastic time to buy at the recent lows. With a 16% upside to $110 and a 4% dividend yield, I see an excellent 20% total return possibility over the next year. That concludes my opinions on the subject; I eagerly await yours! Always layer into any position and utilize articles like these as a starting point for your research.
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