ExxonMobil's Shares Witness Volume Drop: How Should You Play the Stock?

Investors’ interest in Exxon Mobil Corporation XOM has recently waned despite the volume of its shares that traded on March 31 surged to 21,652,300. In the last trading session, the volume of XOM shares traded was significantly down to 12,587,400.

Does it mean that investors should stay away from the stock? Before proceeding, let’s delve deeper into the integrated energy giant’s fundamentals and the broader business landscape.

Permian & Guyana: Prime Contributors to XOM’s Production

Last year, ExxonMobil strengthened its footprint in the Permian — the most prolific basin in the United States — after acquiring Pioneer Natural Resources in May 2024. The acquisition aided the energy giant in boosting its 2024 production by 570 thousand oil equivalent barrels per day. According to XOM, it would be able to double its production in the most prolific play to roughly 2.3 million oil-equivalent barrels per day by 2030. Another integrated energy major that holds a strong position in the Permian is Chevron Corporation CVX.

Like Permian, the company’s operations in the Stabroek Block in Guyana have also been contributing considerably to its production. XOM has been efficiently managing the complex deepwater project while bringing three FPSO (Floating Production, Storage, and Offloading) units online. ExxonMobil expects eight units to be operational there by 2030. Guyana's oil-rich Stabroek block is not just lucrative for XOM; Chevron is also seeking a significant stake in the play while acquiring Hess Corporation. To reflect its strong confidence in acquiring Hess, CVX has already bought about 4.99% of Hess’ common shares between January and March 2025.

XOM’s Integrated Model & Strong Financials Can Beat Volatility

Backed by its integrated business model, ExxonMobil, like Chevron, can sail through an uncertain business environment, especially when oil prices enter bearish territory. This is because, apart from exploration and production activities, XOM is also strongly involved in refining and chemical businesses.

The company can also lean on its strong balance sheet when its business scenario turns volatile and uncertain. XOM’s debt-to-capitalization is 13.36%, significantly lower than the industry’s 27.8%. Like XOM, Chevron also has a strong balance sheet with a debt-to-capitalization of 13.81%. BP plc BP, another company with an integrated business model, however, has a debt-to-capitalization of 43.2%, higher than that of ExxonMobil and Chevron.

ExxonMobil: Reliable Income Source for Long-Term Investors

ExxonMobil is strongly committed to returning capital to shareholders. Having increased its dividend payout for 42 consecutive years, the company has established itself as a reliable source of income for long-term investors. This signals the company’s strong and steady operations across its upstream and downstream spaces.

Like XOM, CVX is also considered a strong dividend player, with the company increasing its dividends for 37 consecutive years.

Should You Bet on XOM Right Away?

Despite the positive developments, XOM's price performance doesn’t look impressive. Year to date, the stock rose 12.5%, underperforming 13.3% improvement of the composite stocks belonging to the industry. While shares of CVX jumped 16.9% over the same time frame, those of BP rose 16%.

YTD Price Chart

It is worth noting that while many investors appreciate XOM for its aggressive capital spending program on exploration and production projects, refining activities, and low-carbon initiatives, this could negatively impact its short-term cash flows.

Also, while the world is gradually moving to renewable energy sources, ExxonMobil’s heavy reliance on fossil fuel could bear long-term uncertainties. Notably, BP was a well-known stock for leading the energy transition. However, recently, BP said that the world is transitioning to clean energy at a slower pace. Hence, it has decided to focus on oil and gas operations.

On the valuation front, XOM is relatively overvalued, with the stock trading at a 7.48x trailing 12-month enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), which is a premium compared with the broader industry average of 4.72x.

Thus, considering that XOM is a relatively expensive stock and investors’ interest in it is temporarily waning, it would be ideal to wait for a more favorable entry point. Currently, the stock 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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