One of our favorite aristocrats of dividend is ExxonMobil (XOM). When on one hand companies like Wal-Mart, IBM and McDonald’s are struggling, the depreciation in the value of ExxonMobil has been because of the recent oil prices crash. With the oil prices lower than what they were last year, we don’t think that there is any more room for the prices to fall.
The lower prices have resulted in an increase in the demand of the oil, and with increasing demand we expect that the prices will be higher soon. Energy stocks will definitely be pushed higher by the increase in the crude prices. And for that, our favorite pick is ExxonMobil.
In latest quarter reports, the earnings/share reported by ExxonMobil was $1.01 which was $0.12 higher than $0.89 consensus estimate. The revenue of the company that was $67.34 billion was also higher than the $63.75 billion estimate of analysts.
Shrewd strategy of Exxon
Over the previous year, the oil prices have gone down about 50%, and some of the oil manufacturers are simply trying to live. On the other hand, ExonMobil is among those elite class companies which are booming in recent environment due to the fact that they are generating free cash flow while cultivating the production.
Currently the oil prices are about $40/barrel. Adverse impact was created by the declining oil prices on the stock price of ExxonMobil. The shares of the company went down about 9 percent in last few days. But in the long run, Exxon is still a very good investment. ExxonMobil has enough cash for surviving recent oil crash. As many companies are merely looking to survive this weak oil environment, ExxonMobil will be looking forward to acquire different companies which are facing bankruptcy.
Reason why ExxonMobil is performing well even in this weak oil environment is that they are focused on conserving the cash flows and are reducing costs as much as they can by assimilating the operations.
Exxon has accomplished total reduction of about $8 billion in the capital and the cash operating costs during current year. Exxon also reduced the 2015 capex by $4.5 billion, compared to previous year. The company also achieved 10 percent drop in the unit prices.
Moreover, for surging its productivity and for aiming opportunity in end market, the company is taking the steps for escalating capacity in different areas. For example, Exxon has increased its LNG project’s gas capacity from 6.9 million to about 7.3 million tons, in Papua New Guinea. Therefore, despite concentrating on the cost reduction, Exxon hasn’t lost sight of available prospects in different areas.
As ExxonMobil is leader in this segment, they will definitely profit from the recovery in oil. Exxon has enough cash for surviving this crash and for acquiring other companies which are threatened by bankruptcy. We think currently, ExxonMobil is a solid buy.