Exxon Mobil Corporation (NYSE:XOM) bulls proceed to defy gravity arsenic the institution reported a grounds FY22, outperforming the S&P 500 (SPX) (SPY) since our last update successful December.
Buyers judge that the "supercycle" volition apt assistance buying sentiments further, with Goldman Sachs (GS) lipid strategists seeing a $100 Brent (CO1:COM) by 2024. However, the concern slope revised its 2023 forecast down to $92, expecting a "supply surplus of 150,000 barrels per time successful 2023," impacted by macroeconomic headwinds and higher accumulation levels.
Moreover, China's COVID reopening is expected to intensify the request outlook for vigor and besides assistance the prospects connected refining margins. Coupled with the structural underinvestment themes that person hobbled planetary vigor markets since reopening from the COVID pandemic, bulls reason that the upcycle is acold from over.
Exxon Mobil believes it's a beneficiary successful these trying times by investing judiciously successful the erstwhile downcycle. As such, it has been capable to leverage the singular betterment from its COVID lows, posting record profitability supra the statement estimates.
Moreover, it expects to proceed investing successful 2023, posting CapEx person to the precocious extremity of its $23B to $25B guidance range. Management highlighted that the manufacture is inactive underinvesting successful lipid and gas, suggesting that the medium-term outlook remains robust.
The institution is besides driving accrued accumulation levels connected its Permian assets, with accumulation expected to scope 1M barrels by 2027.
However, immoderate bulls could person been disappointed with the company's stock repurchase guidance which wasn't upgraded pursuing the grounds performance.
Despite that, its committedness to a $35B repurchase done 2024 is inactive substantial, representing much than 7% of its marketplace cap. Coupled with an NTM dividend output of 3.2%, we judge it's inactive a comparatively charismatic superior allocation strategy that should support XOM bulls onside.
In addition, the institution highlighted that it's focused connected a "balanced approach" successful its superior allocation portion allowing the institution to capitalize connected "a precise affluent portfolio of advantaged projects."
We judge CEO Darren Woods & his squad person done a marvelous occupation for XOM shareholders implicit the past 2 years. It has prudently paid down its debt, with XOM's nett debt-to-EBITDA ratio declining to conscionable 0.11x astatine the extremity of FY22.
As such, the institution is successful a presumption to leverage opportunities successful the lower-carbon abstraction moving ahead, with plans to put astir $17B done 2027.
With Europe's vigor situation successful 2022 providing different near- and medium-term tailwind connected the request for energy security, the satellite volition request much oil. President Biden's acknowledgment of the captious relation that lipid and state companies play implicit the adjacent decennary bolsters the structural underpinnings of what was antecedently a cyclical boom-and-bust story.
Furthermore, with the satellite not expected to autumn into a debilitating recession, the headwinds against a important illness successful lipid & state stocks are not apt successful the adjacent term.
We admit the secular drivers undergirding the bullish thesis to enactment a continued beforehand successful underlying lipid prices. However, the bifurcation successful the spot of XOM's terms enactment is successful stark opposition to the weakness successful the underlying futures market.
As such, we deliberation investors person apt pinned precocious expectations connected Exxon Mobil to proceed delivering and outperforming to warrant XOM's valuation premium comparative to its peers.
Accordingly, XOM past traded astatine an NTM EBITDA aggregate of 5.5x, up of its peers' median of 4.9x (12% premium), according to S&P Cap IQ data.
However, investors should besides see the revised statement estimates projecting an net diminution for Exxon Mobil done FY24. As such, the uplift from higher realized prices could dissipate moving up if underlying vigor prices proceed to stay tepid, contempt the prospects of favorable supply/demand dynamics.
Moreover, it appears the marketplace is inactive unconvinced astir the sustained betterment of vigor prices successful the mean term, which could interaction XOM's upward momentum moving ahead.
There's small uncertainty that XOM is inactive successful a medium-term uptrend, arsenic it re-tested its November highs and appears to person breached through.
Therefore, the instrumentality of important dip-buying enactment astatine its caller lows person bolstered the cardinal thesis successful Exxon Mobil, contempt the bifurcation with the underlying vigor markets.
However, a person look astatine the terms enactment of XOM against the Brent futures suggests that the outperformance has slowed aft a accelerated surge from its June 2022 lows.
It seems to beryllium consolidating but could besides suggest a organisation signifier if the terms enactment fails to regain upward momentum.
As such, we judge caution is inactive warranted. Investors request to see wherefore XOM tin proceed to thrust outperformance against the underlying market, adjacent arsenic its net are expected to diminution done 2024.
Hence, we judge a deeper pullback is steadfast that should assistance eradicate immoderate of the caller late-buying momentum, improving the reward-risk levels for investors consenting to hold for a amended introduction point.
Rating: Sell (Reiterated).
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