Since 2013, oil price per barrel has continued to slide down at a rapid pace. Oil prices have reached an average of $43.30 per barrel this year, a drop of approximately $61 compared to 2013. Because of this, most of the oil stocks faced severe problems over the past two years.
Throughout the past two years, ExxonMobil Corporation (XOM, Financial) lost almost 22% of its overall value, but the stock has displayed some positive signs this year, which has been a transition year for ExxonMobil, as the stock is up almost 15% year to date. Moreover, according to knoema.com, oil price is projected to reach $65.60 per barrel by 2020.
Despite the fluctuating environment, the company managed to exceed earnings estimates by 5 cents in the third quarter. However, the company failed to meet revenue estimates and its revenue declined 12.8% year over year. Most significantly, the company’s revenue plunged for the ninth straight quarter.
This is definitely a big issue for the company, but on the bright side, it represents a good opportunity for long-term stockholders, as oil prices are expected to recover considerably in the imminent years. On the other hand, over the trailing 12 months, the company has efficiently managed to preserve net income margins while other players have suffered losses.
Moreover, ExxonMobil has endured doing what it has done for decades. The company evaded several unprofitable pitfalls that other players capitulated to because the price at which the company evaluated new projects was substantially lower compared to its rivals.
In 2014, when oil price was hovering around $70 a barrel, major players such as BP (BP, Financial) and Shell (RDS.B, Financial) were building their capital budgets, while Exxon’s capital budget was grounded on oil at $55 per barrel. As an outcome, residing conservative then is clearly aiding profits now.
Apart from this, one of the most significant things to notice in the case of Exxon is its dividend. The company has escalated its payout for over 25 consecutive years. Regardless of the extremely impulsive oil prices, the company is gradually increasing its dividend payout, which is truly inspiring.
In 2015, the company’s upstream earnings declined $20.4 billion on the back of feeble oil prices, but a $6.6 billion surge in downstream earnings as well as $100 million surge in chemical earnings helped moderate the loss. As an outcome, compensating results along with robust balance sheet permitted the company to ensure growing its dividend.
Although ExxonMobil has delivered disappointing results in the past few quarters, it still has several unique good qualities that make it a better investment option than its rivals. Most importantly, the company has the massive cash flow necessary to pay dividends to its stockholders.
As a matter of fact, the company has surged its dividend by an average 6% a year throughout the past 33 years and currently trades at a market price of $89, which represents a great opportunity for stockholders to make a profit in the future as soon as oil prices start moving upward. ExxonMobil is a definitely a buy at present level.
Disclosure: No position in the stocks mentioned in this article.
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