Mobil is on track to close out its most profitable year ever, with analysts projecting that the company earned $58 billion in 2022.
But when the oil giant reports fourth quarter earnings on Tuesday morning, investors are unlikely to focus on its past performance, particularly after the stock already soared 80% last year. To buy the stock now, they have to believe that Exxon will once again become a staple stock in the average investor’s portfolio—and fetch a higher valuation.
Analysts expect Exxon (ticker: XOM) to earn $3.29 per share on $97 billion in revenue in the quarter. Both numbers are above levels from the fourth quarter of 2021, but below the third quarter. In fact, the third quarter, when Exxon made $4.45 per share, could represent a peak. Analysts don’t expect EPS to rise above $3 in any quarter in 2023 or 2024.
With earnings expected to slip from 2022 levels this year and next, Exxon’s stock performance will depend more on its valuation, and the value that investors put on its dividend, which looks increasingly solid and likely to grow. Exxon’s dividend yield is now 3.2%, better than the average
stock at 2% and the average energy name at 3%. An aggressive stock buyback plan could also whittle its share count and thus boost its earnings per share.
Exxon trades at just 10.6 times its expected 2023 earnings, a discount to the broader market and its own historical valuation. For parts of the past decade, Exxon traded at about twice its current valuation.
To close that gap, Exxon will have to coax investors back to its stock. Some generalist investors are wary today, in part because Exxon’s earnings have tended to follow a boom-and-bust pattern, and in part because of ESG, or environmental, social, and governance, concerns.
The company is trying to convince Wall Street it is in a better position on both those issues.
First, the company says it is no longer at the whim of the boom-bust cycle, because it is staying within a tight budget that will protect it from downturns. Exxon has become much more efficient in recent years, lowering its drilling costs to the point where CEO Darren Woods expects to be able to cover all its production costs by 2027 even if oil prices fall to $30. Executives say they are on track to cut annual operating expenses by $9 billion from 2019 levels by the end of this year.
And Exxon has been investing more heavily in clean energy projects, even though the company still makes the vast majority of its profits from fossil fuels. On Monday, the company said it is progressing on a plan to make low-carbon hydrogen at a plant in Texas. It is also investing in carbon capture and biofuels.
If Exxon can show it is progressing in those goals, some climate-conscious investors who had shunned the shares may wade back in.
Write to Avi Salzman at email@example.com