Exxon Mobil's Earnings Bounce Back
Our fair value estimate and moat rating remain.
After finishing 2020 on a sour note with a record loss, Exxon (XOM) started off 2021 on the right foot posting year-over-year earnings growth on rising commodity prices and strong chemical margins. Downstream margins remain a point of weakness, stuck below trailing 10-year averages. Other integrated oils are suffering from the same conditions, but Exxon more so given its relatively large downstream footprint. This is part of our thesis, however, as we expect a recovery back toward historical levels, which Exxon should be a primary beneficiary. Meanwhile, it should also benefit from the lift in oil and natural gas prices. While its carbon strategy has continued to garner criticism, we find it prudent. Combined with a more restrained capital budget reiterated at last month’s annual analyst day, we think investors will begin to come around given its low valuation. As such, it remains our preferred name in the sector. Our fair value estimate and moat rating are unchanged.
Exxon reported earnings of $2.7 billion compared with a loss of $610 million in the first quarter last year and a $20.1 billion loss in the fourth quarter due to impairments. Adjusted earnings for the quarter were $2.8 billion compared with adjusted earnings of $2.3 billion a year ago. Earnings were negatively affected by nearly $600 million from the impact of the Texas winter storm during the quarter.
Operating cash flow totaled $9.3 billion during the quarter, or $7.6 billion excluding asset sale proceeds and working capital. This was enough to cover capital spending and the dividend as well as reducing $4.0 billion of debt. As a result, net debt to capital fell to 28% from 29% at the end of 2020. Management plans to apply excess cash beyond the dividend the remainder of the year toward debt reduction and targets a 20%-25% net debt to capital.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Allen Good does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.