Exxon Mobil Corporation (XOM) stock has performed strongly over the past 12 months, following the oil and gas price increase.
The Irving, Texas-based global crude oil and natural gas giant saw its shares rise about 46%.
Exxon Mobil combines exploration and production activities, currently operating over 22,200 wells across the United States and internationally. In the most recent quarter ended September 30, production yielded 3.7 million barrels per day of oil equivalent, which, net of one-offs, increased 2% year-over-year.
As I expect higher fossil fuel prices year-on-year in 2022, Exxon Mobil’s stock should grow with it. Thus, I am bullish on this stock. (See Analysts’ Top Stocks on TipRanks).
Q3 Earnings Results
Thanks to higher oil and gas prices coupled with an increase in motor fuel demand, Exxon Mobil beat analyst expectations on earnings and total revenues for the third quarter of 2021.
The oil and gas giant posted pro-forma earnings of $1.57 per share (a turnaround from the year-ago net loss of $0.15) on total revenues of $73.8 billion (up nearly 60% year-over-year), topping projections in both cases, as analysts expected $1.56 EPS on revenue of $71.1 billion.
The profit of $6.92 billion was a four-year record regarding a three-month reporting period. The Upstream and Downstream results were positive again, while the Chemical segment’s profit improved significantly.
Operating cash flow increased about 170% year over year to $12.1 billion, allowing the company to further strengthen the balance sheet by significantly reducing its debt exposure.
Energy Price Outlook
To reduce energy costs (largely responsible for October’s record inflation), the U.S. and other non-OPEC members are coordinating an action to release strategic barrels of oil.
This has already produced considerable results in terms of a lower price per barrel (down over 15% from highs) and an improved U.S. trade deficit, down more than $14 billion from the September record high gap of $81.4 billion.
However, the effects shouldn’t last much longer than this winter as non-strategic stock available around the world can cover the energy demand for a couple of months at the most. On the other hand, OPEC + will not ship more barrels than those it is currently supplying, which will be exerting upward pressure on the price of oil.
The current price downturn, which has barely affected Exxon Mobil stock, is likely to ease in February-March 2022 and then rebound strongly.
At that point, when the third mass vaccination campaign is in full swing and concerns about variants are expected to subside, many of the COVID-19 restrictions, especially those on air flights, will be lifted.
This will unleash the pent-up demand for fossil fuels, which could push the price per barrel up very fast, and potentially the share price of many operators as well, including Exxon Mobil.
The gradual improvement of the global situation will also be the primary driver for a higher gas price next year.
Future Portfolio Developments
Starting 2022, the company will allocate no less than $20 billion to mineral activities and green projects every year until 2027.
Specifically, the company will keep on developing its oil discoveries in Guyana. It will also focus on offshores in Brazil and the Permian basin and work on a major gas project in Vietnam.
In addition, Exxon received new oil and gas exploration rights from Cyprus to exercise in the Mediterranean. The resumption of talks between Athens and Ankara after several years of tensions coupled with the crisis in the Turkish lira could soften the Turkish government’s stance on maritime claims.
In China, Exxon plans to build a high-performance polymers production complex, chasing growing domestic Chinese demand.
The company aims to achieve its net-zero greenhouse gas emissions target through green projects in the Permian Basin, the American Gulf of Mexico, and The Netherlands.
Looking Ahead to 2022 and Beyond
As the following clues suggest, the business should gradually get better:
The company aims to continue to return cash to its shareholders in the form of quarterly dividends share buybacks under a $10 billion program beginning next year. Management points to doubling earnings by 2025.
Wall Street’s Take
In the past three months, 13 Wall Street analysts have issued a 12-month price target for XOM. The company has a Hold consensus rating, based on six Buys, six Holds, and three Sell ratings.
The average Exxon Mobil Corporation price target is $71.80, implying 14.8% upside potential.
Summary
I think this stock will continue to perform well in the coming months, driven by an expected increase in oil and gas prices.
Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.
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