Exxon Mobil Posts Third Straight Loss in Q3 as COVID-19 Pandemic Hurts Demand; Target Price $23 in Worst Case

Vivek Kumar
·4-min read

Exxon Mobil, an American multinational oil and gas entity, reported a loss for the third consecutive time in Q3 2020 as the oil and gas company continues to struggle from the COVID-19 pandemic-driven slowdown, sending its shares down over 2% on Friday.

The U.S. largest publicly traded oil company reported third-quarter 2020 loss of $680 million, or $0.15 per share assuming dilution. Third-quarter capital and exploration expenditures were $4.1 billion, bringing year-to-date spending to $16.6 billion, more than $6 billion lower than the prior-year period.

Exxon Mobil posted an adjusted loss of 18 cents per share, better than market expectations of a loss of 25 cents per share.

“Exxon Mobil introduced preliminary 2021 capex of $17.5 billion at the midpoint, in-line with Consensus. Exxon Mobil reaffirmed it is planning to fund the dividend without increasing gross debt,” said Jason Gabelman, equity analyst at Cowen and Company.

“We estimate Exxon Mobil ’21 CF will be $5 billion short of covering the dividend; stock performance today could be dictated by other levers to cover that funding gap. 3Q20 earnings beat consensus, though CFO was below the forecast,” Gabelman added.

At the time of writing, Exxon Mobil shares traded 2.48% lower at $32.15 on Friday; the stock is down about 50% so far this year.

Executive Comments

“We remain confident in our long-term strategy and the fundamentals of our business, and are taking the necessary actions to preserve value while protecting the balance sheet and dividend,” said Darren W. Woods, chairman and chief executive officer.

“We are on pace to achieve our 2020 cost-reduction targets and are progressing additional savings next year as we manage through this unprecedented down cycle.”

Exxon Mobil Stock Price Forecast

Nine equity analysts forecast the average price in 12 months at $43.00 with a high forecast of $55.00 and a low forecast of $33.00. The average price target represents a 32.84% increase from the last price of $32.37. From those nine analysts, two rated “Buy”, six rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $44 with a high of $85 under a bull-case scenario and $23 under the worst-case scenario. The firm currently has an “equal-weight” rating on the oil and gas company’s stock. Goldman Sachs Group upgraded shares of Exxon Mobil to a “neutral” rating from a “sell” and lifted their stock price forecast for the company to $36 from $33.

Several other analysts have also recently commented on the stock. Scotiabank upgraded shares of Exxon Mobil to a “sector perform” rating from a “sector underperform” and set a $45 price target on the stock. Credit Suisse Group started coverage and set a “hold” rating and a $47 price target on the stock. At last, Truist lowered their price objective to $41 from $44 and set a “hold” rating on the stock.

Analyst Comments

“Attractive investment opportunities, but above average execution risk. Exxon Mobil (XOM) reduced its 20/21 capex plans, deferring but not abandoning its counter-cyclical growth strategy. Capex ultimately needs to move higher to stabilize the business, and while XOM does have high-quality investment opportunities, funding the capital program and the dividend will strain the balance sheet absent higher commodity prices, making dividend sustainability a lingering risk,” said Devin McDermott, equity and commodities strategist at Morgan Stanley.

“High capex limits FCF. Higher spending and more exposure than peers to current downstream & chemicals margin weakness lead to lower FCF yield. Earnings growth targets appear hard to achieve with current downstream & chemicals margins,” McDermott added.

Upside and Downside Risks

Upside: 1) Higher commodity prices, including liquefied natural gas (LNG). 2) Successful execution of major capital projects. 3) Permian well performance improvements- highlighted by Morgan Stanley.

Downside: 1) Lower commodity prices. 2) Cost overruns on major capital projects. 3) Service cost inflation in the Permian erodes returns. 4) Geopolitical risk could impact production volumes and/or returns; Guyana is a particular focus now.

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This article was originally posted on FX Empire