The Irving, Tex.-based oil giant Exxon Mobil Corporation (XOM) explores and produces crude oil and natural gas in the United States and internationally. XOM shares gained 45.1% in price year-to-date to close yesterday’s trading session at $59.79. However, the stock has declined 8.9% over the past month and 2.4% over the past five days. XOM is currently trading above its 200-day moving average but below its 50-day moving average.

Recently, the company unveiled plans to increase its spending on low-carbon projects and to meet its greenhouse gas emission reduction target by the end of this year, nearly four years ahead of its previous forecast. XOM intends to keep its annual capital spending between $20 billion - $25 billion through 2027. The company expects this spending boost to enable it  to generate double-digit returns even if oil prices fall to as low as $35 a barrel.

However, the newly identified COVID-19 variant, omicron, is raising concerns. Oil prices fell substantially on December 1, after confirmation of an  omicron case in the U.S. Both Brent and WTI front-month contracts in November posted their steepest monthly falls in percentage terms since March 2020, down 16% and 21%, respectively. XOM declined marginally intraday in the trading session on Dec1.  If worries regarding the potential for the omicron variant to slow economic activity and thereby cut oil demand intensifies, XOM shares could retreat further.

Here is what could shape XOM’s performance in the near term:

Lofty Valuation

In terms of forward non-GAAP P/E, XOM is currently trading at 11.92x, which is 8.3% higher than the 11.00x industry average. However, XOM’s trailing-12-month EV/EBIT is 34.3% higher than the 16.76x industry average, and its forward Price/Cash Flow is 14.5% higher than the 5.37x industry average.

Bleak Profitability

XOM’s 31.84% gross profit margin is 20.4% lower than the 40.01% industry average. Also, its 13.88% EBITDA margin is 34.6% lower than the 21.21% industry average.

Moreover, XOM’s negative 3.49% and negative 1.75% respective ROE and ROA compared with the 2.85% and 1.12% industry averages.

Solid Third-Quarter Earnings Report

XOM’s total revenues and other income increased 59.7% year-over-year to $73.79 billion in its fiscal third quarter, ended September 30. Its income before income taxes stood at $9.61 billion, up 2,682.3% from the same period last year. Its net income attributable to the company grew 1,092.6% from its  year-ago value to $6.75 billion. And the company’s EPS increased 1,146.7% year-over-year to $1.57.

POWR Ratings Reflect Uncertain Prospects

XOM has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Value, which is consistent with its lofty valuation.

XOM also has a C grade for Stability, in sync with its 1.05 beta.

Of the 83 stocks in the Energy - Oil & Gas industry, XOM is ranked #53.

Beyond what I have stated above, one can also view XOM’s grades for Quality, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Energy - Oil & Gas industry here.

Bottom Line

XOM delivered a solid third-quarter earnings report reversing its losses incurred during the pandemic. Moreover, the company is focusing on its greenhouse gas emission-reduction plans. However, its near-term prospects could be hindered by the concerns related to the spread of the new COVID-19 variant and the possibility of reduced energy demand. Also, the stock looks overvalued at its current price level. So, it should be wise to wait for a better entry point in the stock.

How Does Exxon Mobil Corporation (XOM) Stack Up Against its Peers?

While XOM has an overall POWR Rating of C, you might want to consider looking at its industry peers, SilverBow Resources, Inc. (SBOW), VAALCO Energy, Inc. (EGY), and Apache Corporation (APA), which have an A (Strong Buy) rating.

Note that SBOW is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

XOM shares were trading at $60.61 per share on Thursday morning, up $0.82 (+1.37%). Year-to-date, XOM has gained 56.08%, versus a 22.37% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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