Dow component Exxon Mobil Corporation (XOM) sold off to a nine-year low on Friday after missing modest fourth quarter 2019 earnings per share (EPS) expectations by $0.04, marking the sixth time in the past nine quarters that the energy giant has missed estimates. Revenues fell 6.6% year over year to $67.17 billion, adding to a 15% decline in the third quarter of 2019. Revenues have now fallen in each of the past four quarters.
A hefty 5.60% forward dividend yield has failed to attract buying interest, with the company frustrating Wall Street analysts with a belt-tightening program to build cash flows during the longest expansion in U.S. history. Analysts took note of poor fourth quarter results, with Cowen and Goldman Sachs issuing downgrades. Expect more to follow in coming sessions, underpinned by a potential first quarter 2020 revenue squeeze as a result of the coronavirus outbreak.
Rival Chevron Corporation (CVX) hasn't fared much better in recent years, reporting a 14.2% year-over-year revenue decline last week, but Chevron stock is still holding above critical support at the December 2018 low. Cowen also downgraded this stock in a Monday morning note, highlighting growing sector headwinds that have dropped the Dow Jones Industrial Average's only two energy plays to the bottom of the component performance list.
Unfortunately for both companies, political headwinds continue to grow and could affect their value for many years to come. Several Democratic candidates want to tax the industry heavily to reduce fossil fuel use, while European climate activists that include Greta Thunberg want hedge funds to dump 100% of their traditional energy holdings. This type of pressure is likely to grow through the decade as the impact of global warming and rising seas makes radical solutions seem more palatable.
XOM Long-Term Chart (1995 – 2020)
Rapid price appreciation escalated in the mid-1990s, with the dismantling of the military-industrial complex following the fall of Communism opening new markets around the world. The uptrend topped out in the mid-$40s in the fourth quarter of 2000, giving way to a multi-wave decline that found support at a four-year low in the upper $20s in 2002. The subsequent recovery wave completed a round trip into the prior high in 2004, triggering an immediate breakout.
Exxon Mobil stock posted strong gains during the mid-decade bull market, underpinned by rapid industrialization in China and other BRIC nations. The rally stalled in the mid-$80s in 2007, yielding two failed breakout attempts, followed by a vertical decline during the 2008 economic collapse. The downtrend ended in the mid-$50s in November, but the subsequent bounce failed a few months later, yielding a secondary downdraft that undercut the prior low in 2010.
Bulls took control into 2014, completing a 100% retracement into the 2007 high, followed by a breakout that posted an all-time high at $104.76. It failed the breakout in October, setting off a persistent downtrend that held in the mid-$60s in 2015. Unfortunately for bulls, that trading floor broke in 2018, yielding a multi-year low, followed by modest 2019 recovery wave. This bullish impulse also failed, generating an aggressive sell-off that has now dropped the stock to the lowest low since 2010.
The sell-off has broken support at the 50% retracement of the 12-year uptrend, exposing continued downside into the 2010 low, which is sitting on the 62% retracement. That level marks exceptionally strong support, indicating that the downtrend could end six to eight points below Friday's closing print. The monthly stochastics oscillator has just entered the oversold zone, with both technical elements telling sidelined investors to wait until that price zone is reached because it could offer very favorable reward-to-risk setup.
The Bottom Line
Exxon Mobil stock has sold off to a nine-year low in reaction to weak earnings but could bottom out in the upper $50s in coming months, offering a long-term buying opportunity.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.