Is ExxonMobil Dying?

Exxon Mobil Corporation (NYSE: XOM) is one of the 6 giant companies of the oil and gas industry, along with Royal Dutch Shell, BP, Chevron, ConocoPhillips and Total. A mere 10-12 years back, they were six of the 10 largest companies in the world. This was when oil prices topped $100 a barrel - the good old days for integrated Exploration and Production companies. The picture is very different right now during a global pandemic and a crash in global oil prices, though Exxon Mobil still remains the world's largest oil and gas company.
In order to understand the shake up in the oilfield market, we need to look at least two broad trends - the state of the Oilfield industry and how Exxon Mobil has reacted to changing market conditions. These two trends, along with other factors extraneous to them, has contributed to the current position of XOM stock.
Over the past decade, Exxon Mobil's earnings have been on a downward trend from its high mark of $467.03 billion in 2011. That trend had been reflected during the oil market downturn during 2014-17 - for example, the Rockefeller Family Fund divested XOM from its portfolio in 2016, a move which caused a lot of tongues to wag in the industry. However, all past troubles have been surpassed by what has hit Exxon in 2020.

There are a number of key risks that investors must watch out for. Among them are the following:

1. Exxon's current dividend yield of 10.15% is neither well covered by current earnings, nor is it expected to be covered over the next 3 years. This represents a problem, since as mentioned above, the company has indicated that it will likely not want to incur more debt - which means that dividend levels have to come down from their current levels of close to $15 billion per year. This diminishes the attractiveness of the stock to some investors.
2. Profit margins year-over-year are down 48%, currently sitting at 3.4% as opposed to 6.5% last year.
3. Large non-recurring items affected financial results in Q2 - Exxon had a $2B one-off gain positively impacting its June 30, 2020 earnings report. Such non-recurring or unusual earnings are not considered to be Quality Earnings.
4. High share price volatility in 2020 - Though declining share prices are an industry-wide phenomenon, Exxon's performance is worse than both the S&P and the Oil and Gas industry. The S&P 500 has risen 15.8% over a 1-Year Period. Over that time, the Oil and Gas industry has seen share price declines of 46.5%, and Exxon has had an even deeper drop at -50.3% share price growth.
5. High Debt Level - Exxon had less than $10B in long-term debt on its Balance Sheet in 2010. During the oil price downturn over 2014-17, the debt increased to over $40B. It is now approaching $70B, or 1.5 times its EBITDA. As mentioned previously, these levels are high for Exxon, but the company is doing better than other industry giants like Shell.

Видео Is ExxonMobil Dying? канала EconomicNewbie