The plummeting oil price, as you probably know by now, has taken a toll on the price of Exxon Mobil (NYSE:XOM) stock. It was around $70 late last year, but now it’s far below that level and has some serious catching up to do.
There were a number of contributing factors to the downfall of Exxon Mobil stock here. The most prominent one is the spread of the novel coronavirus. This caused energy demand to crater as lockdown orders kept people from driving cars or flying on airplanes.
Another major factor is the price war between Saudi Arabia and Russia as the two nations drove the oil price down to unfathomably low levels. The White House evidently wants to stop the oil price from falling too much, but the issue is complex and there’s no way to predict where the price will go from here.
Since we can’t predict the path of the oil price, let’s instead focus on what we know for certain. In particular, Exxon Mobil provided essential data recently that can guide us in understanding the company’s fiscal standing. This may give us clues as to whether the company’s stock can recover.
History Was Made … Unfortunately
The oil futures market experienced an unprecedented drop last month when front-month futures contracts fell into negative territory. It may be hard to wrap your head around this, but the outlook on oil futures contracts was so bad that traders were, at least in theory, willing to pay to get rid of them.
Thankfully for Exxon Mobil shareholders, the downward price pressure of oil futures didn’t affect the stock too much. Sure, the stock price went down, but nowhere near the low $30’s printed in March. This is a positive sign, as it demonstrates that Exxon Mobil stock can withstand oil-price shocks, at least in the near term.
We can’t say that with as much confidence when it comes to smaller American energy companies. It’s likely that some shale-oil producers in the United States will face the possibility of bankruptcy in the near future.
That’s why it’s sometimes best to stick to well-known leaders when trading in volatile markets. Exxon Mobil has a market cap of $182.5 billion and more cash than a small oil company would have. The company survived the challenging market environments of the 1970’s and 2008-2009. It will survive the coronavirus crisis, too.
Putting Earnings in Perspective
The oil-price plunge wasn’t the only recent instance of history being made. Market commentators correctly observed on May 1, after Exxon Mobil reported its earnings data for 2020’s first quarter, that the company posted a quarterly loss for the first time in 32 years.
A long winning streak has been broken, and naturally some people will view that as a reason to sell Exxon Mobil stock. Yet, it’s important to put the earnings loss in perspective. Perhaps things aren’t as bad as they may seem to be.
For the first quarter of 2020, Exxon Mobil reported $56.2 billion in revenue. In the comparable quarter of 2019, the company posted revenue of $63.6 billion. So, the year-over-year change was an 11.6% decline, which really isn’t so terrible.
Other metrics also don’t suggest precipitous year-over-year declines. The first quarter of 2020’s adjusted earnings per share came to 53 cents, a mere 3.6% year-over-year decline. And adjusted net income for the quarter amounted to $2.3 billion, representing a very moderate year-over-year decrease of 4.1%.
For reference, we can compare this to Royal Dutch Shell (NYSE:RDS.A, NYSE:RDS.B), which recently posted a decline in revenue of 28.3%, along with a decrease in adjusted net income of 47.2%. Comparatively speaking, Exxon Mobil is doing rather well.
The Takeaway on Exxon Mobil Stock
The factors that have put price pressure on Exxon Mobil stock might push it down further. This is a possibility, but a close examination of the company’s fundamentals suggests that Exxon Mobil remains in a good financial position despite the confluence of circumstantial headwinds.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
https://investorplace.com/2020/05/advantage-exxon-mobil-stock-weakness/
2020-05-04 16:37:46Z
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