Key Takeaways:
Current Price: $81.86 Price Target: $86
Position Size: 1.83% 1-year Performance: -1.6%
Exxon reported 3Q18 results, with a clear production improvement from last quarter. Its Refining activity outperformed thanks to improved utilization, better reliability and lower maintenance activities (although the later should pick up in 4Q18). XOM continues to see organic growth opportunity in its portfolio. The management team continues to see its dividend as the key method to return capital to shareholders, rather than share buybacks. On the ESG front, XOM is facing some prominent lawsuits regarding climate change costs and how the company might have misled investors. The financial risks of those lawsuits should be minimal to XOM’s operations. The bigger impact on the company’s operations would however be the reclassification of oil & gas waste from solid to hazardous materials, which would add disposal costs to the entire industry. The EPA decision should come in March. No change to our price target or position size.
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
Crestwood Advisors