Goldman Sachs downgraded ExxonMobil’s shares to Sell from Neutral, following one other disappointing quarter.
Exxon reported a drop in earnings on Friday for the fourth quarter, weighed down by a deterioration in almost each phase. Oil costs have been weak, pure gasoline costs fell sharply, whereas revenue margins for refining and petrochemicals additionally deteriorated. “There's little question that 2019 was a difficult 12 months for numerous our companies,” Exxon CEO Darren Woods admitted to shareholders and analysts on an earnings name on January 31. “Near or at 10-year lows on worth and margins for gasoline refining and chemical compounds. Fourth quarter was notably difficult for our chemical enterprise.”
It isn’t simply 10-year lows for costs. Exxon’s share worth can also be at its lowest level in a decade. Meanwhile, ExxonMobil just isn’t slowing down, spending at aggressive ranges because it drills within the Permian and tries to ramp up its oil discoveries in Guyana.
As a end result, the monetary image has darkened. Goldman slashed its worth goal for Exxon’s shares to $59, down from $72 beforehand. The financial institution’s analysts see “draw back to long-term consensus estimates,” and a “lack of free money movement limiting capital returns.” Ultimately, there’s a “danger to long-term return on capital employed targets,” Goldman analysts warned. Exxon’s return on capital employed may find yourself being about half of what Exxon is aiming for by 2025.
Often, there are combined reactions from trade analysts. But the quite gloomy tackle Exxon from so many alternative corners of the monetary world was notable. “Shareholder returns are poor, and debt is rising in a method that means that engaging dividends yields are unsustainable,” Paul Sankey of Mizuho Securities USA LLC stated in a observe to shoppers. “What is so regarding about these mega-oil outcomes is that they arrive in 1 / 4 that featured a median $62/bbl Brent worth.”
“Lower money movement mixed with heavy capital funding led to adverse free money movement and an increase in debt that exceeded our expectations for the 12 months,” Moody’s Investors Service Inc. analyst Pete Speer stated in a observe. “These tendencies proceed to strain the corporate’s credit score metrics as captured in our adverse outlook.”
Exxon hiked its dividend once more with the intention to fulfill shareholders, however its share worth fell in any case. Exxon has not been in a position to finance its dividend and share buybacks with money generated from its operations for a really very long time. Over the previous ten years, Exxon dished out $202 billion to shareholders within the type of buybacks and dividends, however solely generated sufficient cash to cowl about two-thirds of that payout, in line with a latest report from IEEFA. Exxon financed the remaining 30 p.c of these distributions from asset gross sales and debt.
Those numbers worsened considerably final 12 months. “In reality, the corporate’s deteriorating monetary situation required it to cowl 64% of the dividends in 2019 with funds from asset gross sales and borrowing, a pointy improve from its 10-year common of 30%,” IEEFA analysts Tom Sanzillo, Kathy Hipple and Clark Williams-Derry wrote in a commentary.
“It is a dividend that requires crutches,” the analysts stated. “The firm continues to convey new reserves to market on the mistaken time and mistaken worth.”
ExxonMobil would want oil costs to commerce at about $100 per barrel to ensure that the corporate to pay for all of its spending and in addition cowl shareholder payouts, in line with Citigroup. Needless to say, that’s far increased than the prevailing oil worth as we speak, and few, if any, oil market analysts see triple-digit oil costs anytime quickly.
“We can anticipate ExxonMobil to remain round however as a much smaller monetary and manufacturing participant,” IEEFA analysts wrote.
When requested concerning the quarterly numbers on Friday, CNBC’s Jim Cramer was even much less charitable. “I’m performed with fossil fuels,” he stated. “They’re performed. They’re simply performed.”
Please depart feedback and suggestions beneath