Source: PaxForex Premium Analytics Portal, Fundamental Insight
ExxonMobil expects strong results in Q3. The oil giant recently gave investors a preview of those numbers. Although the company's earnings will be down compared to its impressive Q2 results due to the recent drop in oil prices, the company still expects to make huge profits.
Exxon's ability to generate strong profits amid falling oil prices is great news for investors. Meanwhile, as the outlook for crude oil becomes rosier after OPEC's recent announcement, oil stocks may have more upside.
Exxon recently released preliminary results for Q3. The oil giant expects its earnings to be about $11 billion before any asset impairment charges. While that figure is down sharply from the $17.9 billion profit the company made in the previous quarter, it is well above the $6.8 billion it earned in Q3 of 2021.
Oil prices contributed to Exxon's strong results in Q2. However, natural gas was the main star in Q3. The company expects a positive impact of $1.8 billion to $2.2 billion, helped by an increase in U.S. natural gas prices from $7.17 per MMBtu to $8.47 per MMBtu in the past quarter.
This helped offset the decline in crude oil prices from an average of $109 per barrel in the second quarter to $98 in the third quarter. This decline will likely cause Exxon's liquid hydrocarbon revenues to decline by $1.4 billion to $1.9 billion. Meanwhile, falling margins in the company's refining and chemicals businesses will lead to a further $2.7 billion to $2.9 billion decline in earnings in the period.
These numbers exclude the impact of several factors, including currency fluctuations and unplanned downtime. Therefore, the company's final earnings may differ from these preliminary figures. Exxon plans to report official results on Oct. 28.
Exxon's ability to post strong results amid a drop in oil prices in the third quarter demonstrates the benefits of its integrated energy business. The company was able to offset some of the declines in crude oil prices thanks to its strong position in natural gas production. It also allows the company to continue to generate strong revenue and cash flow, giving it the financial flexibility to grow shareholder value.
Exxon is investing heavily in expanding its conventional and new energy sources. The company has several projects underway to increase oil and natural gas production. In addition, it is investing in the largest increase in U.S. refining capacity since 2012. At the same time, Exxon is pouring money into a gradual transition to a lower-carbon future by expanding carbon capture and storage capacity, biofuels, and hydrogen production.
The company is also increasing distributions to shareholders and reducing debt. At the end of the second quarter, its debt-to-equity ratio was 20%, the lower end of its target range. Adding the $18.9 billion cash balance, the net ratio was 13%.
The company also returned $7.6 billion in cash to shareholders during the period, including $3.7 billion in dividends. The dividend aristocrat has increased its payout for 39 consecutive years. The company's strong Q3 results will further strengthen its balance sheet and ability to return capital to shareholders.
Although oil prices declined in this quarter, they have begun to recover and may continue to rise. The main catalyst is OPEC's surprise move to cut production by 2 million barrels per day.
This decision has already helped lift oil from its recent low of $80 a barrel to $90. Oil could continue to rise, especially if the expected global recession doesn't affect demand as much as many assume, or if the industry experiences unexpected supply problems.
Given Exxon's heavy reliance on crude oil prices, it would benefit from OPEC's actions. Higher oil prices will allow Exxon to generate more cash, which will improve its ability to return capital to shareholders and continue to strengthen its already first-class balance sheet. These factors should help boost its stock price.
Exxon expects another rise in earnings in Q3, helped in part by higher natural gas prices that offset falling crude oil prices. As a result, the company is also likely to get another cash inflow, further improving its financial flexibility and balance sheet strength.
Meanwhile, there is a strong possibility that oil prices could rebound in the coming quarters following OPEC's recent decision to cut production. That could give Exxon's stock a boost. The company's resilience and growth potential make it an attractive buy at this time.
As long as the price is above 95.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 101.91
- Take Profit 1: 106.00
- Take Profit 2: 110.00
Alternative scenario:
If the 95.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 95.00
- Take Profit 1: 90.00
- Take Profit 2: 84.00
