Exxon released 4Q17 earnings and cash flow below consensus expectations, driving the stock lower today. In addition, investors were expecting a share buyback announcement that did not materialize. The next catalyst for the stock is its March’s analyst day where a more detailed capital allocation plan will be released. We are maintaining our position size and price target. Continue reading “Exxon 4Q17 earnings results disappoint but no change in long term thesis”
Tag: XOM
Energy Update January 2018: SLB & XOM
Oil view positive for 2018:
• Late cycle has historically favored the energy sector
• We are coming at a FCF inflection point: cost cutting has been done in a low oil price environment. Recent increase in oil price will be incrementally positive for energy companies
• Volume growth
• Valuation
Adding 50bps to XOM to get to a full 2% position
XOM is seen as a defensive holding compared to peers:
• Strong balance sheet
• Top FCF & dividend coverage ratio
• History of finding good balance of reinvesting in the business and returning capital to shareholders
• March 2018 Analyst Day will provide some updates on potential buyback, could be a catalyst for the stock
Schlumberger Update 2018
In a lower for longer oil price environment, service companies that are able to provide a differentiated offer and/or evolve their business model will be able to exceed last cycle’s peak earnings (reached in 2014). We believe SLB has been able to evolve its business and remains a quality company that has attractive growth driver for the coming years.
1. Schlumberger Production Management (SPM) project: key growth driver, recent projects could add $1B in sales in 2018
• High growth/high margin business with less competition
• Less cyclical with better ROIC
• Attractive offering for cash constrained E&P that are looking to partner with service providers to lower production decline rates and/or increase production. SLB gets a portion of incremental profits created by its service
2. Pick up in offshore activity would benefit SLB the most vs. peers
• SLB clients’ project planning at a 2 year high
• Erosion in international pricing is slowing
• International activity has bottomed in 3Q17
3. Shareholder return to improve
• Top line & margin recovery
• Dividend yield 3%, could be increased in 2018 (better cash flow from operations + stable capex)