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We issued an updated research report on Exxon Mobil Corporation XOM on Jul 5, 2018. Being the largest publicly-traded energy firm, the company has a lead position in the energy industry owing to size and diversity of asset base, in terms of business mix and geographical footprint. However, the pipeline bottleneck problem is likely to dampen the company’s domestic production.
Presently, ExxonMobil carries a Zacks Rank #3 (Hold), which indicates that the stock will perform in line with the broader U.S. equity market over the next one to three months.
ExxonMobil has strong presence in almost every prospective oil and gas producing plays around the world. With this extensive geographical footprint, the company is less exposed to limited domestic production possibilities from pipeline bottleneck problems.
Being an integrated energy firm, ExxonMobil’s overall business is least affected by volatility in commodity prices. Large refining and chemical operations are expected to drive bottom line, in case the upstream unit is dampened by low oil and gas prices.
Moreover, the abundance of natural gas in the United Sates following the shale revolution will continue to back the chemical business since the company’s petrochemical crackers will benefit from cheaper natural gas feedstocks like ethane instead of naphtha —derived from the costlier crude.
However, being a leading producer of non-renewable energy, ExxonMobil is facing investigations by New York and Massachusetts officials over claims of withholding information about potential climate change risks from the public.
In the past year, shares of ExxonMobil have gained 2.7% compared with the 21.2% collective rally of the stocks belonging to the industry. Also, ExxonMobil’s current Enterprise Value (EV)/EBITDA ratio of 10.29 is higher than the five-year median value of 8.29. Hence, the stock has limited upside potential considering that the present ratio is nearing the five-year high of 13.86.
Investors should note that we have employed the trailing 12-month Enterprise Multiple. This is because oil energy players typically shoulder significant debt related to investments in growth projects and EV includes debt for evaluating the company or the industry.
Stocks to Consider
A few better-ranked players in the energy sector include Anadarko Petroleum Corp. APC, Eclipse Resources Corp. ECR and Chevron Corp. CVX. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
We expect Anadarko Petroleum to witness year-over-year earnings growth of 229.6% in 2018.
Eclipse is expected to record revenue growth of 13.5% in 2018.
Chevron is likely to witness year-over-year earnings growth of 130.3% in 2018.
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