Exxon Mobil (XOM) shares have lagged the S&P 500 for the better part of the last 10 years, disappointing a lot of long-term investors.
The pandemic in 2020 didn’t help either. Since 2021, shares rallied and gained 61% within a year, outperforming all the three major U.S. indices.
Its massive bull run has continued this year as well, and the stock has already gained close to 31% year-to-date. The rally has pretty much covered all losses that were inflicted on it by the pandemic. I am bullish on the stock.
Exxon Mobil Corporation is a Texas-based oil and gas giant with global operations. The company operates through Upstream, Downstream, and Chemical segments, and is known to have fully integrated its operations starting from energy production to delivery processes.
While the Upstream segment explores and produces crude oil and natural gas, the Downstream segment works towards manufacturing, trading, and selling petroleum products globally.
As of last year, Exxon had about 20,528 net operated wells with proven reserves. In terms of market cap, it is the 15th-largest company in the United States and is also the largest energy company in America.
Exxon Mobil seems to be going in the right direction. Its diversified operations and huge scale of operations have provided the company with the much-needed stability compared to most other energy stocks.
Its share price has managed to remain relatively unaffected compared to the rampant volatility going on in the market these days. The prices of oil this year are higher than last year, which means there is a possibility that the company would do even better this year.
Other than that, a major reason behind the company’s success has to be its focus on cutting down unnecessary costs and addressing the investor’s key issues. Both aspects are to be continued this year as well. Thus, investors should not worry too much that Exxon has already hit its peak.
Better Financials
2021 was a good year for Exxon when the company generated peer leading returns. In the fourth quarter of the year, the company’s revenue increased to $85 billion, showing a huge 83% improvement.
Net income came in at $8.9 billion, translating to diluted earnings per share of $2.08.
One of the best things about its financials is how the company quickly covered its pandemic losses.
In 2021, it generated $23 billion in net income, completely covering the loss of $22.4 billion it had incurred during 2020. No doubt the company’s operations were disrupted in 2020, but even when compared to 2019, a 61% improvement in its net income can be witnessed. Additionally, the debt position had also been reduced by $20 billion.
Exxon generated an operating cash flow of $48.1 billion in FY 2021, compared to the operating cash flow of $17.1 billion in FY 2020, and its free cash flows also were recorded at $37.9 billion.
Notably, this was the highest operating cash flow of the company since 2012. All this might have been possible because the company had reduced its structural costs by an additional $1.9 billion this time, thus increasing its total savings to nearly $5 billion compared to 2019.
According to TipRanks, XOM stock comes in as a Moderate Buy, based on 11 Buys, and 12 Holds assigned over the past three months.
The average Exxon Mobil price target of $90.76 suggests 10.3% upside potential.
Drive Towards Clean Energy
The world is moving towards clean energy these days, and Exxon is attempting to play a sizeable part in that arena.
Exxon intends to achieve net-zero Scope 1 and Scope 2 of greenhouse gas emissions by 2050. These relate to emissions that take place with respect to the operations of a business, and Scope 3 is about emissions that come up from the use of a product.
Exxon has already invested a huge amount in the development of low-emission energy over the last 20 years, and to achieve its target by 2050 it will be investing another $15 billion by 2027 for lowering emissions.
A part of that money will also be invested in carbon capture and biofuels. With this, the company can potentially lead the oil industry to a more sustainable approach.
Exxon is a growing stock. The company has access to both the upstream and downstream segments of the oil business. Coupled with the cost-cutting, the company is expected to double its cash flows by 2027.
Besides, the stock is also perfect for all the dividend hungry investors out there as it gives out handsome dividend payments, and also has one of the highest yields amongst all the S&P 500 companies.
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