Should You Buy Exxon After its Earnings Release?
This morning, Exxon Mobil reported positive third quarter earnings. It matched EPS estimates of $2.13 for the quarter and garnered $125.33 billion in revenues versus an estimate of $113.56 billion. Exxon has continuously overpowered its competition in the energy sector, and many investors seem to think that its good fortune will continue into the future. However, in recent history, Exxon's stock price has peaked between $90 and $95. If the stock manages to reach those historical levels again, that would give investors a 14% gain, if they got in soon. Does that mean you should invest in Exxon right now?
Exxon Mobil posted fairly impressive earnings, especially considering that crude oil prices were depressed. Typically, crude oil prices increase during the winter months, as demand becomes higher to use automobiles. Another major event that could affect crude oil prices is the fact that oil inventories in China are waning rapidly. As winter is approaching, China's fuel shortages are worsening. The case is also the same with India, which has another burgeoning economy with surging consumer demand for anything and everything under the sun. Energy prices have been rapidly increasing as the entire world is sharing inventories of oil.
Exxon's revenues continue to increase while operating expenses tend to stay static. Increasing margins are always good for companies, especially when it is a result of organic growth rather than excessive cost cutting. Exxon's cash reserves, on the other hand have declined by about $2 billion. While other current assets did not move significantly, a significant decrease in cash may not be a good thing. This is keeping in mind the fact that there were no significant capital expenditures made by the company. The company's short term debt load increased, but long-term debt did not. It seems likely that Exxon will manage to pay off its bills on time. Its other liabilities did not fluctuate significantly. Lastly, retained earnings increased by $8 billion in the last quarter, which significantly added value to shareholders. The company also bought back $5 billion in shares.
Exxon Mobil is a mega-cap company that is diversified in the energy and natural resources space. It recently beat earnings and some investors think that it may be able to reach historical highs. If so, there is a potential 14% upside available. It also seems likely that crude oil prices will increase in the coming months, which may help buttress Exxon's next earnings release.
Traders who believe that Exxon Mobil is an appropriate long investment might want to consider the following points:
- Exxon's continuously increasing earnings reports shows that it may be gaining market share.
- Exxon's operating margins are continuously increasing quarter-over-quarter, which may continue.
- Oil prices typically increase during the holiday season, which has just started.
Traders who believe that Exxon Mobil is more suited for a short play may consider an alternate position:
- Exxon operates in a very mature industry with thousands of competitors; historical performance does not dictate future performance.
- Exxon's stock does not have much room to grow, so there may be better alternatives as far as energy investments.
- Exxon's stock did not move very much as a result of its earnings release; this may mean that investors are not convinced that there is room for growth in its equity despite the growth in operations.
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