Due to the strong recovery in oil prices, ExxonMobil Corp. (XOM, Financial) performed really well in 2016 as the stock was up nearly 16%. The stock, however, is down approximately 7% year to date, which presents a good buying opportunity for investors as oil prices are projected to hover around $55 per barrel this year.
ExxonMobil reported disappointing fourth quarter results in January as it failed to surpass analysts' estimates on both the bottom and top lines. The company recorded earnings per share of 41 cents, missing the estimates by 29 cents. Revenue came in at $61 billion, missing the consensus by a wide margin of $1.26 billion.
That figure, however, represents a year-over-year surge of 2% compared to -31.5% in the fourth quarter of fiscal 2015. Most importantly, the company finally managed to return to positive revenue growth after reporting negative revenue growth throughout the past eight quarters.
Although 2016 was a rough year for most of the energy companies situated in the United States, ExxonMobil performed comparatively well. In 2016, the oil giant managed to cut its capital expenditure by 38%, which came in at $19.3 billion. Moreover, the company also produced a positive free cash flow of $9.7 billion.
Keeping in mind the positive outlook for oil prices, however, the company now plans to capitalize on that by escalating its capital expenditure budget. In January, ExxonMobil made a great move by acquiring an enormous acreage position in the Permian Basin of West Texas and New Mexico for $5 billion. The company’s management detailed that wells in the area can yield a 10% rate of return at an oil price of $40 per barrel.
As a result, this acquisition will fortify the company’s substantial presence in U.S. onshore oil production, which is steadily growing.
When it comes to dividends, the company has a strong track record of returning cash to investors every year. In 2016, the company increased its quarterly dividend 3%, from 73 cents to 75 cents, while other oil companies were struggling to survive in the industry. The oil giant has increased its dividend for 34 consecutive years, which is quite impressive.
Conclusion
ExxonMobil rewarded investors with healthy returns in 2016 on the back of stronger oil prices. The company has successfully managed to increase its dividend every year for the past 34 years and will continue to do so considering its ability to produce strong free cash flow.
Moreover, oil prices are forecasted to further improve in the coming years, which will certainly have a fruitful impact on the company’s free cash flow. Currently, the stock offers a strong dividend yield of 3.7% and trades around its 52-week low. As a result, ExxonMobil is a strong buy at the current market price as its short-term as well as long-term prospects look good.
Disclosure: I don't hold a position in the stock mentioned in this article.
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