Exxon Drops to 15-Year Low Ahead of Annual Strategy Presentation
Comment of the Day

February 25 2020

Commentary by Eoin Treacy

Exxon Drops to 15-Year Low Ahead of Annual Strategy Presentation

This article by Kevin Crowley for Bloomberg may be of interest to subscribers. Here is a section:


Exxon Mobil Corp. fell to a 15-year low on Monday amid a broad selloff in equity and commodity markets and just over a week before Chief Executive Officer Darren Woods is scheduled to present the oil explorer’s long-term strategic plan to investors and analysts.

The shares have been under pressure since Exxon disclosed disappointing fourth-quarter results in late January and prospects for a near-term recovery were dimmed by the spreading coronavirus. Excess supplies of natural gas, chemicals and motor fuels also weighed on the oil supermajor.

Exxon fell 4.7% to close at $56.36 on Monday in New York as Brent crude tumbled to about $56 a barrel. The last time the Texas-based driller’s stock traded at this level was the end of 2005, when crude fetched $59.

Eoin Treacy's view

Exxon Mobil is one of the original cast of S&P500 Dividend Aristocrats. It has been decades since it cut its dividend so investors are looking on eagerly to hear how the company plans to retain a strong position in the global energy market that will allow it to sustain pay outs.

The company’s investment plan is going to be expensive and that means share buybacks are unlikely. Meanwhile the low price of natural gas, in particular, puts the financial viability of the Papua New Guinea LNG project Exxon has pinned its hopes on in question.

The share currently yields 6.41% and the share is accelerating lower. Bullet bonds maturing in 2022 with a 1.9% coupon currently yield 1.43%. That suggests the shares represent value whenever energy prices find support and most particularly if the company can sustain its dividend.

Royal Dutch Shell’s yield is 8,24% and its 2022 bonds yield 1.49%. The company does not have the same long record of dividend increases as Exxon Mobil but it has always paid a dividend. The acceleration is going to create a value opportunity eventually but some steadiness in the global economic environment will probably be required to attract investors.

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