$XOM Exxon a 'show-me' stock as dismal Q2 sh
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Posted On: 07/27/2018 8:15:42 PM
$XOM
Exxon a 'show-me' stock as dismal Q2 shows production, cashflow fixes needed
Following another disappointing quarter Exxon Mobil (NYSE:XOM) in which production fell another 7% Y/Y, the company finds itself in the unusual position of needing to convince investors of its long-term strategy.
“We think investors are looking for a stabilization in production volumes in order to have confidence," says RBC's Biraj Borkhataria.
XOM "does things bigger than most, and that also applies to missing expectations, it seems," writes Bloomberg's Liam Denning, noting its Q2 earnings and cash flow per share both fell short of consensus forecasts by more than 20%, and free cash flow after capex fell nearly 40% from a year earlier and was not enough to cover the company’s dividend.
XOM's "ultra-defensive characteristics (including a significant overweight in downstream and chemicals) inherently limit leverage to oil prices,” Raymond James analysts say. "Since we expect further oil price gains to cyclical highs over the next six to 12 months, Exxon stands out as one of the least appealing ways to play that among its peers."
"Exxon is lucky in one regard," Denning says, as Chevron (NYSE:CVX) also reported downbeat Q2 results, but Chevron’s miss mostly was fueled by a slight rise in expenses that analysts say likely will not be repeated.
CVX's report was aided somewhat by plans to launch a $3B share buyback program, but XOM is not ready to follow suit: Denning notes XOM's free cash flow fell compared with the year-ago quarter even as oil prices are ~50% higher.
Exxon a 'show-me' stock as dismal Q2 shows production, cashflow fixes needed
Following another disappointing quarter Exxon Mobil (NYSE:XOM) in which production fell another 7% Y/Y, the company finds itself in the unusual position of needing to convince investors of its long-term strategy.
“We think investors are looking for a stabilization in production volumes in order to have confidence," says RBC's Biraj Borkhataria.
XOM "does things bigger than most, and that also applies to missing expectations, it seems," writes Bloomberg's Liam Denning, noting its Q2 earnings and cash flow per share both fell short of consensus forecasts by more than 20%, and free cash flow after capex fell nearly 40% from a year earlier and was not enough to cover the company’s dividend.
XOM's "ultra-defensive characteristics (including a significant overweight in downstream and chemicals) inherently limit leverage to oil prices,” Raymond James analysts say. "Since we expect further oil price gains to cyclical highs over the next six to 12 months, Exxon stands out as one of the least appealing ways to play that among its peers."
"Exxon is lucky in one regard," Denning says, as Chevron (NYSE:CVX) also reported downbeat Q2 results, but Chevron’s miss mostly was fueled by a slight rise in expenses that analysts say likely will not be repeated.
CVX's report was aided somewhat by plans to launch a $3B share buyback program, but XOM is not ready to follow suit: Denning notes XOM's free cash flow fell compared with the year-ago quarter even as oil prices are ~50% higher.
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