ExxonMobil Gains a Marginal 1.6% in a Year: Hold or Fold the Stock?

Exxon Mobil Corporation XOM has gained 1.6% over the past year, outpacing the 0.7% decline of the composite stocks belonging to the industry. This signifies that there is not much momentum in the stock price, but before coming to investment conclusions, investors should examine XOM’s fundamentals and overall business environment.

One-Year Price Chart

Softness Prevails in ExxonMobil’s Upstream Business

Per the latest short-term energy outlook of the U.S. Energy Information Administration (“EIA”), the West Texas Intermediate Spot Average price for 2025 is projected at $65.22 per barrel, significantly lower than $76.60 per barrel in 2024. EIA further lowers the projections for the commodity’s price for 2026 to $54.82 per barrel. Since analysts expect oil supply to grow faster than the demand for it, global oil inventories are rising, putting pressure on crude prices, which could hurt XOM’s upstream operations. 

Since ExxonMobil generates the king-size of its earnings from its upstream operations, lower crude prices are likely to hurt its bottom line.

Other integrated majors that are also getting the brunt of lower oil prices are Chevron Corporation CVX and BP plc BP. This is because both CVX and BP generate significant proportions of their earnings from exploration and production activities of oil and natural gas.

Many analysts think that commodity price volatility, especially when crude prices are likely to fall in the days ahead, could limit cash flows of CVX and BP like XOM, and hence require cautious capital allocation.

Will XOM's Bottom Line Be Affected in Q2 Earnings?

ExxonMobil recently disclosed in an 8-K filing that it expects earnings for the second quarter of 2025 to be hurt sequentially by lower oil and natural gas prices. With exploration and production activities contributing mostly to XOM’s bottom line, a weaker commodity pricing environment in the June quarter of this year is a concern.

According to EIA, the average spot prices for Cushing, OK, West Texas Intermediate (WTI) crude for April, May and June were $63.54, $62.17 and $68.17 per barrel, respectively. Based on the EIA data, the pricing environment was healthier in the first quarter, with average prices of $75.74, $71.53 and $68.24 per barrel for January, February and March, respectively. The same story also applies to natural gas prices.

Softer commodity prices are expected to hurt XOM’s upstream business, as the energy giant forecasts that lower oil prices will sequentially decrease its upstream earnings by $800 million to $1.2 billion. A change in gas prices will reduce its upstream profit by $300 million to $700 million. Thus, it can be assumed that ExxonMobil’s second-quarter results are going to take a hit. The Zacks Consensus Estimate for XOM’s earnings for the June quarter is pegged at $1.46 per share, suggesting a decline of almost 32% year over year.

XOM Can Lean on Strong Balance Sheet

Despite the unfavorable developments, investors still like the stock since it has significantly lower exposure to debt capital. XOM’s debt-to-capitalization of 12.2% is considerably lower than 28.14% of the composite stocks belonging to the industry.

Therefore, if an unfavorable business event were to occur soon, ExxonMobil can rely on its strong balance sheet to navigate the uncertain business environment.

What Should Investors' Stance Be on XOM Stock?

Although the commodity pricing environment is not so favorable for XOM’s upstream business, the integrated energy giant’s strong footprint in the low-cost and prolific Permian and Guyana resources is likely to serve as a stimulus. This doesn’t mean that investors should immediately rush to bet on the stock with a low debt profile.

Moreover, the stock is currently overvalued as reflected in its trading at a 7.05x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is at a premium compared with the broader industry average of 4.23x.

Thus, investors already invested in ExxonMobil should retain the stock. Currently, XOM carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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