Exxon Mobil is an American multinational oil and gas business with a market capitalization of approximately $400 billion (NYSE:XOM). The corporation now has several other ways to increase shareholder returns, including a dividend yield of approximately 4%. This essay will demonstrate that cash flow is king and that Exxon Mobil’s cash flow will allow for significantly higher shareholder returns.
The Market
Exxon Mobil concentrates on outperformance as the business continues to operate in a challenging environment.
In the most recent quarter, the company’s margins were very healthy. The corporation had top and medium-end margins for crude and chemical markets. It saw margins for natural gas and refinery that were significantly higher than in the past ten years. The markets’ ongoing strength will allow for more cash flow.
The market is still erratic. The crisis between Russia and Ukraine is still impacting prices. As a result, Europe keeps trying to shift demand substantially away from Russia. The need for energy is rising as countries in Asia and Africa continue to expand. Due to the uncertainty surrounding long-term demand, supply investment is still modest.
We’ll have to wait and see how Exxon Mobil will fare in a tumultuous market. The business has some of the most vital assets in the sector, nevertheless, and it also has the lowest breakeven.
Exxon Mobil’s Paid Out Investments
Exxon Mobil profited from significant investments made during a challenging time.
Between 2017 and 2021, Exxon Mobil invested about $100 billion, more than doubling its upstream earnings, to build up a sizable portfolio of assets, including Guyana. For instance, the business spent $13 billion in 2020 even though it lost $20 billion. Similar to how Chevron made significant investments before the mid-2014 meltdown.
Since prices are now extremely high as a result of that significant investment, the corporation stands to make huge profits. There were much greater returns than the majority of the companies’ competitors who didn’t make the same investments.
Exxon Mobil 2Q Results for 2022
Exxon Mobil earned exceptionally strong 2Q 2022 performance based on a lucrative market.
Exxon Mobil produced a great 2Q 2022 performance due to a record-breaking quarter. The corporation has $17.6 billion in earnings and $20 billion in CFO. Even with a midpoint estimate of $22.5 billion for the whole year’s anticipated capital investment, the company’s FCF for the quarter was still above $15 billion, or $60 billion annually.
This translates to an anticipated FCF yield for 2022 of roughly 16 percent. Including $3.7 billion in dividends and roughly $4 billion in share buybacks, the business distributed $7.6 billion in shareholder payments, representing an annualized yield of almost 8%. Even with that and capital expenditures, the cash position still increased by $8 billion.
Thanks to these awe-inspiring achievements, the company’s debts are no longer an issue.
Outlook for Exxon Mobil
In the upcoming quarters, Exxon Mobil has the potential to generate even higher earnings.
Exxon Mobil’s costs varied significantly in the second quarter of 2022. However, many of these costs are anticipated to decline in the following quarters. At the same time, prices have held steady thus far. As a result, the corporation will be able to improve earnings compared to previous quarters in the approaching quarters. The corporation is anticipated to save $1 billion alone from the reduction in maintenance.
Due to divestitures, the company anticipates a flat 3Q 2022 volume. However, the corporation recently made two fresh finds in Guyana. Over the next few years, production will increase by hundreds of thousands of barrels. The growing output will be made possible by the company’s vision.
Potential Shareholder Return of Exxon Mobil
Exxon Mobil has the potential to produce significant shareholder returns.
The corporation can continue paying dividends with an annualized return of approximately 4%. The company’s share repurchase rate is roughly 5% at the same time. Before raising its dividend further, we want to see the company speed up its share repurchases and continue investing in its business. It would also be wise to reduce debt to avoid paying interest.
At the same time, the business hasn’t made any sizable investments in a long while. This would be an excellent opportunity for the business to make a sizable investment because many other companies are still trading at low prices. We anticipate direct shareholder returns in the upper single digits, regardless of how the company uses the funds.
The company generates a sizable amount of cash flow in a fluctuating market, which helps demonstrate the investment’s value.
Research Risk
Being an integrated oil producer, Exxon Mobil profits from both rising upstream prices and rising oil prices. The recent strength in downstream prices allowed the company to see that. The company’s most significant risk is weak pricing, particularly for upstream crude. The business has maintained its profitability thus far, but this has been known to alter in the past.
Investors need to pay close attention to patterns as well as market pricing. Prices may drop quickly during a recession.
Conclusion
Exxon Mobil’s asset portfolio is distinctive and exceptional. The corporation invested tens of billions of dollars in capital expansion during a challenging period for the markets. It is now seeing the benefits of such vast sums of money. The company has a double-digit dividend yield based on its most recent annualized FCF.
The business is using many strategies to produce future shareholder gains. It is still making significant investments in capital growth. The yield on the dividend is over 4%. Its share repurchase yield is approximately 5%. And it is boosting its revenue by more than $30 billion. Its debt yield can be controlled. Whatever the corporation does with its money, it produces excellent shareholder returns.
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