OPEC and its allies (which embrace Russia) gave the oil markets a superb 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 in brief order.
The mainstream analyst view is that OPEC is smart to place a flooring of $80 per barrel beneath the worth of oil.
Some analysts assume that the OPEC transfer could possibly be sufficient to ship oil costs again to $100 per barrel.
Greater oil costs are clearly excellent news for oil main Exxon Mobil (NYSE: XOM).
However does that imply that Exxon is at present a “Purchase”?
I’m not so positive, 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 possibility to purchase low.
To be truthful, although, Exxon shares are buying and selling right here for good purpose. The corporate is coming off an unbelievable 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 could not attain once more for some time.
Oil costs appear unlikely to common wherever near $100 this 12 months, even with the current OPEC cuts. Now we have seen oil effectively beneath $80 for a lot of the 12 months up to now.
This 12 months, analysts anticipate Exxon’s EPS to drop nearly 25% to $10.29.
Although earnings are falling, the share worth hasn’t… at the least 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 signify a mixed market price 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 tons of of billions thereafter!
Exxon’s CEO was quoted as saying that these decarbonization companies might outgrow the corporate’s legacy oil and fuel enterprise in 10 years. Wow!
The enchantment 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 a substitute, the decarbonization income will probably 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 feel at this early level, it’s unsure how worthwhile they will be.
As an investor, I don’t have any potential to know simply how effectively these massive investments into completely new companies will end up.
With out realizing that, it’s arduous for me to be bullish concerning the inventory.
As a result of the inventory worth has already had a giant run on the again of final 12 months’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.”
