ExxonMobil recorded its best year since 2008, delivering a mouth-watering $56B net profit, compared with the $45B recorded in 2008. In percentage terms, it translates to a 20% shattering of the prior record, mainly driven by oil prices peaking at $126 per barrel in 2022 at the onset of the Russia-Ukraine war.
With the reopening of the Chinese economy, oil demand is expected to remain steady in 2023, giving oil companies a sound footing for the year. The outlook for 2023 does not provide many headwinds besides a potential recession that could play out over a short period and possible supply constraints arising from the Russia-Ukraine war.
Technicals
ExxonMobil (NYSE: XOM) is trading at an all-time high and has been trending upwards since the latter part of 2022. The uptrend has been fuelled by signs of a slowdown in Fed Rate Hikes, mainly in response to cooling inflation data. A slower pace of interest rate hikes could benefit the valuations of interest-paying businesses, ExxonMobil being one of them, with total debt at $27B.
Currently, the price ranges in a zone with support and resistance at 104.00 and 115.95 levels, respectively. Given the solid results and expectation of a stable year ahead, the resistance of 115.95 could likely be broken with bullish activity driving prices to the next potential high of 123.00.
If bullish pressure subsides at current levels, the price will likely retrace back towards the 104.00 level as sellers begin to enter the market at all-time highs.
Fundamentals
ExxonMobil has led its peers on total shareholder returns and return on capital employed with returns of 87% and 25%, respectively. With a $56B net profit for 2022 and a lead in the industry, ExxonMobil exudes a healthy business with room for upside gains.
Revenues are predominantly from the upstream segment, which comprises oil and gas making up 61% of total revenues in 2021. Upstream revenues are highly dependent on the price of oil and gas. With the prices of oil on a recovery, driven by a demand shock from China’s reopening, there is a possibility that ExxonMobil’s share price is not currently at its all-time highs.
In addition, oil companies can cushion their revenues by passing higher costs onto consumers due to the necessity of the products they sell, which is an advantage, only some businesses have. After discounting for future cash flows, a fair value of $125.80 has been arrived at, leaving ExxonMobil with decent upside potential.
Summary
With China’s reopening in play, oil companies are set to deliver stable results for 2023. However, oil prices are unlikely to reach the high set in 2022 due to market pricing in supply constraints from the Russia-Ukraine war. Therefore, record-breaking profits might not be in the books for 2023. However, a steady upward trajectory is probable.
Sources: ExxonMobil, Financial Times, Trading View, Koyfin