Morningstar

Exxon Earnings: Strong Quarter Demonstrates Progress on Long-Term Objectives

Exxon remains one of the most undervalued integrated oils in our coverage and our preferred play.

Exxon logo at gas station.
Securities In This Article
Exxon Mobil Corp
(XOM)

Key Morningstar Metrics for Exxon Mobil

What We Thought of Exxon Mobil’s Earnings

Exxon’s second-quarter adjusted earnings increased to $9.2 billion from $7.9 billion the year before, surpassing market expectations. The increase was largely attributable to the inclusion of two months of Pioneer results and structural cost savings that offset lower energy product results from weaker refining margins.

Exxon reduced structural costs by another $0.6 billion during the quarter and $1.0 billion in the year to date, bringing the cumulative amount to $10.7 billion compared with 2019 while keeping it on track to achieve its $5 billion target by 2027 from 2023. Year-over-year production increased to 4,358 thousand barrels of oil equivalent per day from 3,608 mboe/d, thanks to the inclusion of Pioneer and strong Permian and Guyana growth. The addition of these high-margin volumes should continue for the next few years, as should the cost reductions, improving upstream profitability.

Exxon paid dividends of $4.3 billion and repurchased $5.2 billion in shares in the quarter, in line with guidance. Given the closing of the Pioneer deal, the firm can increase repurchases and plans to repurchase a total of $19 billion this year, implying about $11 billion in the second half, with a rate of $20 billion annually through 2025.

We plan to update our model but do not anticipate any material changes to our narrow moat rating or $138 fair value estimate, leaving shares undervalued. Exxon remains one of the most undervalued integrated oils in our coverage and our preferred play, given its potential for earnings growth.

ExxonMobil Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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