Source: PaxForex Premium Analytics Portal, Fundamental Insight
ExxonMobil stock has soared 50% since the start of 2020, compared to a 22% gain in the S&P 500, and is up 72% YoY. Still, the oil giant the other day announced a new corporate plan to launch a massive $50 billion stock buyback program, even as analysts worry that the coming recession could reduce demand for oil, which has fallen to about $70 a barrel.
With Exxon stock trading just below its all-time high, investors certainly want to know if it's time to spend all that money on the company's stock.
Basically, companies have a choice about how they can share their success with investors: They can pay dividends or buy back shares.
Exxon boasts record profits this year. The company posted third-quarter profits of $19.7 billion, $4 billion more than Wall Street analysts expected, and almost as much as the $20.7 billion that Apple made.
The company pays a quarterly dividend of $0.91 per share, up 3 percent from last year. The company has raised its payout for 40 consecutive years, making it a dividend aristocrat.
The share buyback reduces the number of shares the company has outstanding. Consequently, each remaining share represents a larger share of the company's ownership. After suspending its share repurchase program in 2021, the company announced a $10 billion program in January, which it completed in Q3. It is now looking to boost that program with a $50 billion buyback plan.
If Exxon were to start buying its stock today, it would pay some of the highest prices for it -- but that's not the whole picture. The stock is selling for only 8 times its projected earnings and 9 times next year's forecast, one of the lowest valuations in 30 years.
They also sell for only a fraction of the long-term earnings growth rate, and analysts predict that Exxon's earnings will grow 25% a year for the next five years.
Buying back huge numbers of shares is not the only thing on Exxon's agenda. The company believes profits and cash flow will double by 2027 as it plans to spend $20 billion to $25 billion annually on capital expenditures. The company also intends to maintain production at about 3.7 million barrels of oil equivalent per day next year at an assumed oil price of $60 a barrel.
Exxon had 4.1 billion shares outstanding at the end of the third quarter. At about $104 a share, it could buy back nearly half a billion shares, reducing the number by 11%.
The oil giant continues to invest in new projects, such as those in the Permian Basin and Guyana. It is also making substantial investments in liquefied natural gas (LNG) export facilities around the world.
With CEO Darren Woods predicting an LNG shortage in Europe for several years to come, Exxon is ideally positioned to take advantage of increased demand.
Although ExxonMobil will come under pressure as demand for alternative energy sources grows, this stock buyback is a great time to buy the company's stock.
As long as the price is above 102.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 105.10
- Take Profit 1: 108.00
- Take Profit 2: 114.00
Alternative scenario:
If the level of 102.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 102.20
- Take Profit 1: 97.00
- Take Profit 2: 92.00
