EXXON MOBIL WASHING OUT TODAY – COULD A BOUNCE BE IN THE CARDS?

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Exxon Mobil
XOM
gapped down on the post-OPEC / nasty crude oil drop hangover this morning. Even as XOM shares have held up nicely during the recent decline in crude, not even Exxon could withstand the barrage of selling pressure generated by yesterday and today's drop in crude oil. So, clearly we must formulate an opinion on crude as a requisite for analyzing Exxon. On that front, some technicians believe a very short-term low in crude was put in yesterday and that a counter-trend bounce has either started or will start shortly. They note that such a bounce may take crude up to $75 - $80 from the current $69 level. From there, however, they are calling for a downside move that should create even lower lows for crude oil. That being noted, investors and traders should likely be looking for a bounce in XOM that will coincide with crude's bounce and then a nasty fall that will tag along with the anticipated secondary decline in crude. Let's take a look at the whole XOM picture, though, to all bases are covered… What the bulls see in Exxon Mobil… • Reasonable valuation metrics: o An enterprise value of $417 billion that slightly trumps the market capitalization of $388 billion o A price-to-book ratio of 2.22 o A price-to-sales ratio of 1.02 • Net profit margins of 8.73% that spin off over $12 billion in positive levered free cash flow annually • An impressive debt-to-equity ratio of only 11.65% • A Treasury beating dividend yield of 2.90% with a low payout ratio of only 33% - giving Exxon room to raise its dividend What the bears see in Exxon Mobil… • An expensive P/E of just over 15 when considering the 2015 estimates for negative revenue and earnings growth • A technical outlook for crude oil by some analysts that have prices continuing to tumble to the low-$60s The technical take on XOM shares… Technicians note that Exxon shares may be in the midst of a macro head & shoulders topping formation. The resistance for the right shoulder of this formation comes in at around $97.50 - $98.50 and the downside target – should the formation play out completely – would be down at $70. Short-term support for XOM comes in at Friday's low of $90.58 and is backed up by the October lows around $87. The technical call is for a continued bounce in both crude oil and Exxon in the very short-term. Once upside resistance is met – at $97.50 for XOM and $75.91 for crude oil – sellers will come back into the mix with vigor. Overall… Exxon Mobil shares could rally off of today's lows – right along with crude oil. Nimble traders can play the long side in anticipation of that rally continuing up to the projected “right shoulder” resistance. Stops must be honored by the longs, however, on any undercut of Friday's lows. Short-sellers will likely be looking to re-enter the XOM arena if and when the $97.50 level is tested.
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