Will Exxon Mobil Surprise Again?

| About: Exxon Mobil (XOM)

Summary

Exxon Mobil is scheduled to report its fourth quarter 2015 financial results on Tuesday, February 02, before market open.

According to 20 analysts' average estimate, Exxon is expected to post a profit of $0.66 a share, a 50% decline from its actual earnings for the same quarter a year ago.

According to my calculations, taking into account commodities prices changes and the change in crack spread, Exxon will show earnings of about $4,681 million in the fourth quarter.

In my view, XOM's stock should be included in every diversified large-cap dividend stocks portfolio.

While waiting for a significant rebound in the price of oil, investors can enjoy the generous dividend yielding 3.81% a year.

Exxon Mobil (NYSE:XOM) is scheduled to report its fourth quarter 2015 financial results on Tuesday, February 02, before market open. According to 20 analysts' average estimate, Exxon is expected to post a profit of $0.66 a share, a 50% decline from its actual earnings for the same quarter a year ago. The highest estimate is for a profit of $0.90 a share while the lowest is for a profit of $0.46 a share. Revenue for the third quarter is expected to decrease 39.9% year-over-year to $52.49 billion, according to six analysts' average estimate. There were five EPS up revisions and one down revision during the last thirty days. Since Exxon has shown an earnings per share surprise in most of its previous quarters, as shown in the table below, there is a good chance that the company will beat estimates also in the fourth quarter.

Data: Yahoo Finance

Trying to estimate Exxon's earnings for the fourth quarter, I have calculated the average price of Brent crude oil, WTI crude, gasoline, natural gas and gasoline crack spread in the third quarter and the fourth quarter. The results are shown in the table below.

Upstream

I have calculated the estimate upstream earnings for the fourth quarter by assuming it had declined from the third quarter at the same rate that the average WTI crude oil price had decreased. According to my calculations, upstream earnings should have been about $1.214 billion in the fourth quarter compared to $1.358 billion in the third quarter.

* 4Q15 - my estimate

Downstream

I have calculated the estimate downstream earnings for the fourth quarter by assuming it had risen from the third quarter at the same rate that the average gasoline crack spread had increased, taking into account also the drop in natural gas price. Refiners use natural gas as an energy source for the process - cheap natural gas helps to lower production cost. According to my calculations, downstream earnings should have been about $2.240 billion in the fourth quarter compared to $2.033 billion in the third quarter.

* 4Q15 - my estimate

Chemical

Since Exxon's chemical earnings have been quite similar in the last few quarters, I assume the earnings in the fourth quarter should have been about the same of the earnings in the third quarter - about $1.227 billion.

* 4Q15 - my estimate

All in all, I assume Exxon will show earnings of about $4.681 billion in the fourth quarter compared to $4.618 billion in the third quarter. Of course, the estimated increase is not significant, but maintaining the same level of profits in this low oil price environment is quite an accomplishment.

Since the beginning of 2015, XOM's stock is down 17.0%, while the S&P 500 Index has decreased 7.5% and the Nasdaq Composite Index has lost 3.6%. According to TipRanks, the average target price of the top analysts is at $81, up 5.6% from the January 26 closing price. However, in my opinion, when oil prices start to recover XOM's stock will climb much higher.

XOM Daily Chart

Chart: TradeStation Group, Inc.

Currently the dividend yield is pretty high at 3.81% and the payout ratio is at 60%. The annual rate of dividend growth over the past three years was high at 13.4%, over the past five years was at 10.2%, and over the last ten years also was high at 9.8%. Exxon has increased its annual dividend payment to shareholders for 33 consecutive years. Even during the global economic crisis of the years 2008-2009, Exxon continued to increase its dividend.

XOM Dividend Chart

XOM Dividend data by YCharts

Summary

Exxon Mobil is scheduled to report its fourth-quarter 2015 financial results on Tuesday, February 02, before market open. According to 20 analysts' average estimate, Exxon is expected to post a profit of $0.66 a share, a 50% decline from its actual earnings for the same quarter a year ago. Since Exxon has shown an earnings per share surprise in most of its previous quarters, there is a good chance that the company will beat estimates also in the fourth quarter. According to my calculations, taking into account commodities prices changes and the change in crack spread, Exxon will show earnings of about $4.681 billion in the fourth quarter compared to $4.618 billion in the third quarter. Of course, the estimated increase is not significant, but maintaining the same level of profits in this low oil price environment is quite an accomplishment. In my view, XOM's stock should be included in every diversified large-cap dividend stock portfolio. While waiting for a significant rebound in the price of oil, investors can enjoy the generous dividend yielding 3.81% a year. The company has a long record of 33 years of raising its dividend. Even during the global economic crisis of the years 2008-2009, Exxon continued to increase its dividend.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Major Integrated Oil & Gas, Earnings
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