Exxon UP on beating Q1 2017 EPS estimates, higher NG prices

Last week, the US administration denied a request to remove restrictions on the world’s most valued energy company Exxon Mobil Corp (NYSE: XOM) to carry out operations in the banned parts of Russia.

The sanctions were slapped on Russia in 2014, following the annexation of Crimea. The news of denial eclipsed the reported fiscal 2017 first-quarter earnings that beat analysts’ estimates. The quarterly revenues were below the market’s expectations. So, the stock hardly saw an increase in volatility. However, we expect the stock of Exxon, which closed at $82.05 yesterday, to turn bullish due to reasons presented below.

Total revenues of the oil and gas company increased $14.5 billion y-o-y to $63.287 billion in the fiscal 2017 first-quarter. The Irving, Texas-based company reported net income of $4.010 billion or $0.95 per share, up 122% from $1.810 billion or $0.43 per share in the similar period last year. Analysts had anticipated Exxon to report earnings of $0.85 per share on revenues of $64.7 billion. A 51% y-o-y increase in the price of natural gas assisted Exxon to post impressive gains in profits.

The Young Turks

The Upstream segment reported first quarter earnings of $2.25 billion, compared to a net loss of $76 million in the similar period last year. Earnings from Downstream segment increased to $1.12 billion in Q1 2017, from $906 million in Q1 2016. However, in the recent quarter, earnings from Chemical segment declined marginally to $1.12 billion, from $1.36 billion in the corresponding period of 2016. According to Exxon, weaker profit margins and negative impact of currency affected the quarterly earnings of Chemical segment.

Net cash from operations increased to $8.2 billion in the quarter ended March 2017, from $4.8 billion in March 2016. On the contrary, capital and exploration expenditures were $4.17 billion in the recent quarter, compared to $5.13 billion in Q1 2016.

The Board of Exxon has also increased the dividend by $0.02 y-o-y to $0.75 per share. Exxon distributed $3.1 billion in dividends to shareholders.

Exxon is a highly disciplined crude oil and gas company. By comparing the oil prices with results of the past two years, it can be inferred that as long as the price stays around $50 per barrel, Exxon will not face major issues in generating significant profits. Additionally, the strong natural gas prices will also enable the company to generate higher cash flow and profits relative to previous years. Thus, fundamentally, an uptrend can be expected in the stock of Exxon.

Technically, the stock is moving along an ascending channel, as shown in the image below. The MACD histogram’s reading is about to turn positive. Thus, a trader can expect the stock to reach the next resistance level of 82.90.

By investing in a high or above option offered by a binary broker, a trader can gain from the anticipated uptrend. The contract should be preferably bought when the stock of Exxon trades near $82 in the NYSE. Furthermore, the chosen option should have an expiry period of seven days.

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