ExxonMobil Holdings Corporation XOM has jumped 44.3% over the past year, outpacing the industry’s 42.4% growth. BP plc BP and Chevron CVX, two other integrated players in the same space, have gained 30.4% and 35.1%, respectively, over the same time span.
The price chart clearly reflects investors’ strong preference for XOM stock. Should investors continue to bet on the integrated energy giant? Before getting into the conclusions, let’s delve into the company’s fundamentals and overall business environment.
Oil Price Still High: Boon for XOM’s Operations?
West Texas Intermediate (“WTI”) crude is hovering around the $90-per-barrel mark. The high prices are being driven by intensifying conflicts in the Middle East. The U.S. Energy Information Administration in its latest short-term energy outlook projected WTI at $88.21 per barrel this year, higher than $65.40 last year. A highly favorable oil pricing environment is likely to continue supporting ExxonMobil’s exploration and production activities, similar to BP and Chevron.
Importantly, upstream operations generate the majority of earnings for XOM. The company has a massive footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing new drilling techniques and artificial intelligence to boost and optimize production volumes at lower cost structures.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Robust production from both assets has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
Robust Balance Sheet & Dividend Commitment of XOM
Investors should also keep in mind that XOM has a strong balance sheet that can support it during an unfavorable business environment. The debt-to-capitalization of ExxonMobil is 13.73%, significantly lower than 28.48% 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%.
Time to Bet on XOM?
Coming to the valuation story, ExxonMobil is trading at a premium. On a relative basis, the stock is trading at a 9.18x 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 5.90x. BP and Chevron are trading at 2.89x and 7.82x, respectively.
Since the stock is relatively expensive now, investors should wait for the ideal time to bet on XOM. However, those who have already invested may continue to hold on to 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).