Oil-superior ExxonMobil (NYSE 🙂 appears to be regaining investor confidence in the aftermath of the devastating year of 2020. The stock has risen more than 50% in the last three months, hoping for the worst over for the largest US and giant as it restructures its operations and drives drastic cost savings.
Before delving into the pros and cons of investing in ExxonMobil, it is important to understand what changed for the company during this pandemic and where this energy company is headed after enduring the most challenging market conditions it has faced. ever experienced.
As it announced its last month, Exxon reported its first annual loss in at least three decades as oil demand collapsed and prices plummeted during the COVID-19 pandemic. The earnings report showed that Exxon had taken an impairment charge of $ 19 billion and cash flows were negative – $ 20 billion after including dividend payments.
That blow had a more devastating impact on Exxon compared to other energy giants. It turned the company's expansionist approach – which was based on massive spending to find more oil and gas at a time when the world is looking for clean energy sources – on its head.
In addition to the pandemic crash in the oil markets, Irving, Texas-based Exxon laid off thousands of employees and was disposed of its 30 components, blue chip, in late August after its market value fell.
At the time, investors had serious doubts about the ability to continue to pay dividends. Along the way, there was also a whistleblower complaint that Exxon overvalued its Permian assets and a report that it had considered merging with rival Chevron (NYSE :).
New Plan To Survive
After what has been clearly the most challenging year in the company's history, CEO Darren Woods devised a plan to boost Wall Street's trust. to win. Woods' new blueprint for XOM redirects capital expenditures into privileged assets with the highest potential future value, including developments in Guyana and the US Permian Basin, targeted exploration in Brazil, and chemical projects to grow high-performance products.
Investors seem to be appealing to this turnaround strategy. The company's stock price, which closed at $ 50.61 on Tuesday, is up more than 50% in the past quarter. Its closest rival, Chevron, delivered nearly half of the profits XOM made over the same period.
Exxon Mobile Weekly Chart.
Analysts at JPMorgan, Goldman Sachs, Wells Fargo and Morgan Stanley have all made positive recommendations for Exxon in recent weeks, CNBC.com said. They have built their optimistic views after seeing improved oil and gas prices. That will help the company avoid cutting its $ 0.87 per share quarterly dividend. The annual dividend yield on the stock is now around 7% – one of the richest among US largecap stocks.
Woods assured investors last month that with futures, then $ 45 a barrel, the company could pay its dividends and invest in the low end of its flexible capital spending problem. Brent at $ 50 a barrel would allow the company to invest $ 16 billion in its capital program spending, which is on the low end of the company's 2021 guideline.
Brent traded around $ 61.10 a barrel on Tuesday, the highest level in more than a year, rebounding from less than $ 20 a barrel in April last year.
Bottom Line
With soaring oil prices and drastic cuts, Exxon seems to be heading in the right direction. With these steps, Exxon is in a better position to continue to pay its dividends – the main attraction for long-term investors to buy this stock.
That said, Exxon is still a risky bet. It remains highly dependent on the successful reopening of the economy in which oil demand would remain strong.
