Exxon Earnings: Ignore Earnings Shortfall as Long-Term Growth and Improvement on Track

Key Morningstar Metrics for Exxon Mobil

• Fair Value Estimate: $133.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Exxon Mobil’s Earnings

Exxon Mobil’s XOM first-quarter adjusted earnings fell to $8.2 billion from $11.6 billion the year before, slightly short of market expectations. The decline was largely attributable to lower gas prices and narrower refining margins, both of which fell back toward historical averages from highs last year.

Exxon reduced structural costs by another $0.4 billion during the quarter, bringing the cumulative amount to $10.1 billion compared with 2019 while keeping it on track to achieve its $15 billion target by 2027. Year-over-year production fell slightly including divestments, but grew slightly excluding these impacts. Importantly, high-margin volumes from Guyana continue to grow, while divested assets represent lower-margin production, continuing the portfolio high-grading that should continue for the next few years. Both the cost reductions and greater earnings capacity from Exxon’s businesses underpin its goal to double 2019 earnings and cash flow by 2027.

For the quarter, Exxon paid dividends of $3.8 billion and repurchased $3.0 billion in shares, in line with guidance. The share repurchase program was paused before the Pioneer Natural Resources shareholder special meeting. After the deal is closed (which is expected to happen in the second quarter), Exxon will increase the repurchase rate to $20 billion annually. We have already incorporated the impact into our model, keeping our $133 fair value estimate unchanged. Exxon continues to trade at a meaningful discount to that valuation.

Shares sold off on the earnings miss, but nothing has changed in our view, keeping Exxon our preferred integrated oil company, given its earnings growth potential on a combination of high-quality asset additions and cost savings, which should ultimately lead to a stronger competitive position and greater shareholder returns.