Exxon Mobil Corporation XOM recently announced its expectations for first-quarter 2026 earnings. The integrated energy giant expects crude price strength to aid its upstream earnings, which contribute the most to its bottom line.
What should investors do now with the stock? It is prudent to first evaluate the company’s underlying business fundamentals before making any business decisions.
XOM Expects Oil Price Strength to Aid Q1 Upstream Earnings
In its latest 8-K SEC filings, XOM stated that it is likely to see a sequential improvement in the March quarter upstream earnings by $1.9 billion to $2.3 billion, due to an increase in liquid prices.
To have an idea of how oil prices behaved in the March quarter, let's analyze the commodity prices from the data provided by the U.S. Energy Information Administration (“EIA”). The average Cushing, OK, WTI spot prices for January, February and March of this year were $60.04 per barrel, $64.51 per barrel and $91.38 per barrel, respectively, per EIA data. Commodity prices were $60.89 per barrel, $60.06 per barrel and $57.97 per barrel, respectively, in October, November and December, according to the EIA. Investors should note that a more favorable crude pricing environment is also likely to have aided the upstream businesses of other integrated giants like BP plc BP and Chevron Corporation CVX.
Coming to the natural gas story, XOM projects a change in gas price to sequentially increase its upstream earnings by $200 million to $600 million.
XOM’s Solid Balance & Dividend Commitment
Investors should also keep in mind that XOM has a strong balance sheet, on which it could rely during an unfavorable business environment. The debt to capitalization of ExxonMobil stands at 14.04%, lower than the 30.1% of the industry’s composite stocks.
Coming to the integrated energy giant’s dividend commitment story, over the past 43 years, ExxonMobil has been rewarding shareholders with annual dividend hikes at an average rate of 5.8%.
Should Investors Bet on XOM Right Away?
With upstream businesses contributing the most to its earnings, XOM’s business outlook seems promising since the WTI oil price is currently trading at more than $100 per barrel, owing to the ongoing tensions in the Middle East. EIA, in its latest short-term energy outlook, projected WTI at $87.41 per barrel this year, higher than $65.40 last year.
Investors’ preference for XOM is also getting reflected in the stock’s price chart, with the company surging 48.1% in the past year, but underperforming the industry’s 53.9% improvement. BP and CVX, belonging to the same space, jumped 73.6% and 41.4%, respectively.
Despite all the positive developments in place, investors shouldn’t rush to bet on the stock right away, as it is currently overvalued. On a relative basis, the stock is trading at a 9.72x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 6.78x.
However, those who have already invested may hold the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).