Exxon Mobil (NYSE:XOM) is slightly lower on Friday after the company announced a mixed third-quarter report. XOM stock is off this week’s low, but hovers precariously close to the 2020 low from March.
Source: Michael Gordon / Shutterstock.com
Currently near $32.50, the stock is not all that far from its $28.97 low.
Some traders and investors may argue that shares are more than 10% above those lows. That observation is true. However, in a world where the energy market remains under pressure and where XOM stock is still down 52% from its 2020 high, a few bucks a share suddenly doesn’t seem like very much.
The company reported a loss of 18 cents per share, beating expectations by 18 cents. The result is actually pretty impressive. Not just because Exxon beat estimates, but because it’s curbing its losses.
That’s despite the company generating revenue of “just” $46.2 billion. That missed estimates by more than $2 billion and marked a decline of almost 30% year over year.
That said, Exxon still lost $680 million in the quarter. That was better than the $1.08 billion it lost in the prior quarter. While the trend is improving, there’s still reason for investors to be hesitant.
Chairman and CEO Darren Woods said, “We remain confident in our long-term strategy and the fundamentals of our business, and are taking the necessary actions to preserve value while protecting the balance sheet and dividend.”
Protecting the balance sheet and the dividend is important for investors at this point, as we need to avoid a liquidity situation.
Breaking Down Exxon Mobil
I struggle with the energy space. On the one hand, there is obvious value in the group on a long-term horizon. At the same time, I value the technicals alongside the fundamentals. Neither of them seemingly have any momentum.
So for active traders and even low-active investors, energy may not be a place to commit investment funds just yet. Perhaps energy is only looking attractive for the long-term, deep-value crowd. Some in the industry agree. It’s why ConocoPhillips (NYSE:COP) scooped up Concho Resources (NYSE:CXO) in a $9.7 billion deal.
However, if I’m laying down cash on these companies, I’m buying those with the stronger balance sheets. Thankfully for XOM stock, it has solid financials.
Surprisingly, the company has been maintaining its dividend as well. Earlier in the week, Exxon declared its quarterly dividend of 87 cents per share. That gives the stock a yield north of 11%. At this point though, I’m not sure if cutting that dividend would give investors relief or disappoint them now that the payout is lower.
Before the novel coronavirus hit, the energy market was a difficult one to size up. That’s because it has been flush with supply, able to tap into drilled wells at a moments notice and bring supply to the market any time oil prices rose notably.
With the supply side flush but stable due to coordinated production efforts, oil prices were stable. However, when demand fell through the floor, oil prices tanked. As coronavirus cases climb and as countries go back into lockdown — like France and Germany — one has to wonder about oil demand.
That’s going to be a negative for Exxon and its peers moving forward.
Trading XOM Stock
Click to EnlargeSource: Chart courtesy of StockCharts.com
On the plus side, consensus estimates call for a 500% rebound in earnings next year to profitability. Further, analysts expect revenue to grow almost 20%. Granted that still leaves 2021’s results below 2019’s results — meaning 2020’s decline fully wasn’t erased — but it’s not a story where Exxon continues to break down. At least not yet.
XOM stock has been stuck below the 20-day moving average for months now. That’s not a good short-term sign. However, the 50-day moving average has been the real resistance level.
If shares can reclaim the 50-day moving average and rotate over the October high of $35.95, then bulls could see some momentum. That could put $40-plus and/or the 200-day moving average on the table.
For now, I want to see if shares can hold up over $32.50. Below puts this week’s low in play at $31.11. Below that and XOM stock can test into that $30 level of interest.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
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