(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Exxon Mobil Corp. (XOM) stock has not performed well over the past year rising by 1.4%, versus an S&P 500 rise of 14%. The performance comes despite the price of Oil rising by over 38%. An analysis of the technical chart suggests things may now get worse for Exxon, with the stock falling by 8%. (For more, see also: Exxon Underappreciated on the Street: RBC.)
It would seem that there is a good reason why Exxon's stock has languished over the past year, despite massive gains in the price of oil. That is because investors do not believe the significant growth rates of 2018 will last, as evidenced by the falling estimates and the low trading multiple. The recent quarterly disappointment also suggests that expectations may even be too high.
Weak Technical Chart
The stock is currently trading around $82 and is hovering just above a critical technical support level at $80.50. Should the stock fall below technical support, shares may drop by 8% from its current price to nearly $75.40. Another bearish indication is the formation of a reversal pattern in the stock known as a rising wedge, also suggesting the stock may be due to fall.
The oil company reported second-quarter results on July 27 that fell short of estimates, with earnings coming in more than 2% below forecast, and revenue missing by more than 9%. (For more, see also: ExxonMobil's Massive and Reliable Money Machine.)
Analysts have started to slash their earnings and revenue outlook for the company following the disappointing results. For the third quarter, analysts have trimmed their earnings estimates by over one percentage point, and now see earnings growing by 38% for the quarter. Meanwhile, they have also cut the revenue outlook for the business, by nearly 1.5%, and now see revenue rising by about 9%.
The estimates for the full-year have fallen significantly. Earnings estimates for the full-year have dropped by more than 8% with earnings growth now seen at 27%. Meanwhile, revenue forecasts have decreased by nearly 4.5% and are seen rising by only 17.6%.
Exxon's stock appears to be cheap trading at 15 times 2019 earnings estimates, but the revenue and earnings growth of 2018 is expected to slow materially in 2019 and then again in 2020. Earnings in 2019 are expected to climb by 18%, before getting cut in half in 2020. Meanwhile, the revenue outlook for 2019 calls for growth of just 6%, before turning negative in 2020.
For Exxon's stock to start rising, the company is going to need to start beating estimates, while also hoping for higher oil prices.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.