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.
Key Morningstar Metrics for Exxon Mobil
- Fair Value Estimate: $138.00
- Morningstar Rating: 4 stars
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: High
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.
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