Key Takeaways:
Current Price: $76 Price Target: $86
Position Size: 1.74% 1-year Performance: +11.8%
Exxon reported 4Q18 results, with continued production improvements and earnings ahead of consensus ($1.20 vs. 1.07). Permian production came ahead of expectations, with close to a 90% increase y/y, thanks to an increase in rigs. XOM’s CEO sees very good returns in the Permian even if the price of oil comes down to $35/barrel. On the other hand, growth in its other 4 pillars won’t be seen until 2020. Refining profits more than doubled as margins increased. Free cash flow covered their dividends. Capex spending slowed in 4Q as oil prices declined but Capex for 2019 is now guided up +16% y/y vs. management’s previous guidance numbers ($30B vs $28B previously). Overall we see Exxon moving in the right direction, and importantly staying the course on its strategic investments.
Thesis on Exxon (XOM)
- Strong balance sheet means the company can be opportunistic in current environment to drive future growth and profitability (acquisitions, div increase, buybacks)
- Large "Quality" business and Industry Leader = Best balance sheet and return on capital in the industry due to low production costs and high operating efficiency
- Low "beta" (less commodity sensitivity) name to reduce volatility of our overall Energy Equity exposure yet still participate in higher commodity demand/prices over time
$XOM US
[tag XOM] $XOM.US
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109