OPEC and its allies (which embrace Russia) gave the oil markets a very good shock this month.
The oil-producing group introduced plans to extend its manufacturing cuts to a whopping 3.66 million barrels of oil per day.
Oil costs responded instantly, with West Texas Intermediate (WTI) crude leaping from $66 per barrel to over $80 briefly order.
The mainstream analyst view is that OPEC is smart to place a ground of $80 per barrel underneath the worth of oil.
Some analysts assume that the OPEC transfer may very well be sufficient to ship oil costs again to $100 per barrel.
Larger oil costs are clearly excellent news for oil main Exxon Mobil (NYSE: XOM).
However does that imply that Exxon is presently a “Purchase”?
I’m not so certain, and I say that for a few causes.
First, as worth traders, we will’t be blind to the truth that Exxon shares are already buying and selling close to all-time highs.
So this isn’t a chance to purchase low.
To be truthful, although, Exxon shares are buying and selling right here for good purpose. The corporate is coming off an unimaginable 2022.
The corporate posted a record-high revenue of $56 billion. That was a document for not simply Exxon, however any Western oil firm.
That $56 billion revenue translated to earnings per share (EPS) of $13.26, a quantity that Exxon might not attain once more for some time.
Oil costs appear unlikely to common wherever near $100 this yr, even with the current OPEC cuts. We’ve got seen oil effectively underneath $80 for a lot of the yr to date.
This yr, analysts count on Exxon’s EPS to drop virtually 25% to $10.29.
Although earnings are falling, the share worth hasn’t… a minimum of not but.
My second concern is that the way forward for Exxon goes to look very completely different from its current previous.
Like all main producers, Exxon is attempting to diversify its enterprise away from oil and fuel manufacturing.
Exxon is investing large {dollars} in carbon seize, hydrogen and biofuels.
The corporate’s administration estimates that these areas are going to characterize a mixed market value of $6.5 trillion by 2050.
In a current presentation, Exxon revealed that it expects to be producing tens of billions of {dollars} in income from these initiatives inside 5 to 10 years… and a whole lot of billions thereafter!
Exxon’s CEO was quoted as saying that these decarbonization companies may outgrow the corporate’s legacy oil and fuel enterprise in 10 years. Wow!
The attraction of those new income streams is that they gained’t have the volatility of oil and fuel manufacturing, which depends on unpredictable commodity costs.
As an alternative, the decarbonization income might be tied to predictable, long-term contracts.
Whereas this new enterprise enterprise sounds thrilling, my concern is that Exxon is wading into uncharted waters.
These new ventures are simply that: new.
Score Exxon Inventory
Exxon is betting the way forward for the corporate on these companies, and I believe at this early level, it’s unsure how worthwhile they’ll be.
As an investor, I don’t have any means to know simply how effectively these large investments into solely new companies will prove.
With out realizing that, it’s onerous for me to be bullish in regards to the inventory.
As a result of the inventory worth has already had a giant run on the again of final yr’s document income – which probably gained’t be repeated – and due to the uncertainty over these new non-oil and fuel manufacturing initiatives…
The Worth Meter charges Exxon Mobil as simply “Appropriately Valued.”