Good Day For Exxon Mobil
Those familiar with my work already know that I had been rather hot on the energy sector going back to the middle of December when I significantly increased my exposure to the space. This was in all honesty...really a defensive move. My thoughts at the time were to seek the shelter of these fat dividend yields while not cutting my book off from the potential for growth... you know, in case the world did not actually end.
Energy is hot on Friday, the first day of February, on the heels of a January that saw WTI Crude increase in value by a cool 18%, not to mention the cold weather that pushed natural gas a bit higher. On Friday morning, Chevron (CVX) and Exon Mobil (XOM) both reported earnings that acted as a positive catalyst for the two names. This came hours after Royal Dutch Shell (RDS.A) posted earnings on Thursday night that were also warmly received. I am long all three, and could write about all three, but perhaps Exxon Mobil is the most challenging name of these stocks, so let's go there. By the way, British Petroleum (BP) reports next week, another name in this space that I like and hold a long position in.
XOM put Q4 EPS to the tape of $1.41. This was a solid beat. It gets sloppy after that. While quarterly revenue of $71.9 billion presents as 8.1% growth year over year, the number fell short of industry consensus by more than $600 million. Production was solid, increasing to more than 4 million BOE/day (Barrel of Oil Equivalent per day) for the first time in a couple of years. The Permian provided aggressive production growth of 90%. This is where I think the new energy traders might get lost. You saw the insanely good numbers posted this week by Valero (VLO) , right? That's refining. Now, for Exxon Mobil, they are an explorer/producer, but they are so big that they do everything.
For the quarter, upstream operations provided earnings that fell 6.2% sequentially (q/q) to $3.7 billion. Now downstream operations provided a surge in the other direction, up 64.4%. That's awesome but a smaller business for XOM, providing earnings of $.2.73 billion. This number also includes the sale of the facility at Augusta in Sicily. (They still call it Esso there)
Strictly for the new kids. When energy analysts speak of performance across different parts of the industry, this is what they mean by....
Upstream.. Exploration and Production. In other words, the arduous task of find oil and natural gas, and then getting it out of the earth.
Midstream.. Storage and Transportation. Is as it reads. Maritime, Rails, Pipelines,and where to put the stuff.
Downstream.. Refineries to petroleum based products to retail sales. This is where the rubber meets the road, literally.
Exxon Mobil appears ready to announce plans to proceed on a $10 billion project in cooperation with Qatar Petroleum to expand the Golden Pass LNG (liquefied natural gas) export facility at Sabine Pass, Texas. ConocoPhillips (COP) is currently a 12.4% stake holder in the facility, but according to Reuters does not plan to participate in this enterprise. Trade deal prep?
I wanted to show you this interesting breakout. Just yesterday (Thursday), XOM cracked the upper trend line of the Pitchfork, while simultaneously moving above a 38.2% retracement of the Q4 meltdown. This morning (Friday), the shares were easily above the 50% retracement level. Hmm. I'll tell you what, I enjoy the 4.5% dividend yield. That said, even with a price target of $82, this thing touches $78, and I'll take something off.
Exxon Mobil (XOM)
Price Target: $82
- Q) Sarge, how can I reduce my net basis?
- A) March 15th $72.50 puts were paying a rough 80 cents this morning.
To do list: 100 push ups. Begin.