Lower Breakevens And China Projects Will Secure Future Success

Key Takeaways

• Strategic cost reductions and low breakeven targets enhance earnings resilience and margin growth amid price fluctuations.
  
• Investments in Low Carbon Solutions and advantaged projects in China, Guyana, and Brazil drive long-term growth and market diversification.
  
• External uncertainties and trade tensions threaten margins and earnings, while strategic reliance on cost reduction and chemical production faces significant risks.

Catalysts

Engages in the exploration and production of crude oil and natural gas in the United States, Canada, the United Kingdom, Singapore, France, and internationally.

• ExxonMobil's strategic focus on lowering breakevens to $35 per barrel by 2027 and $30 per barrel by 2030 suggests potential for improved net margins and earnings resilience against commodity price fluctuations.
  
• The ongoing transformation and cost efficiency gains, exemplified by $12.7 billion in structural cost reductions since 2019, are expected to enhance net margins and bolster earnings power.
  
• Advantaged projects in China and the commencement of two FPSOs in Guyana and Brazil underscoring capital investment are anticipated to significantly contribute to revenue growth and earnings by introducing competitive, high-value products to rapidly growing markets.
  
• Continued investments in Low Carbon Solutions, targeting $1 billion in earnings by 2030, provide long-term growth potentials that are insulated from commodity price cycles, affecting overall revenue stability and diversification.
  
• A strong commitment to capital allocation priorities, including share buybacks and reinvestment in advantaged projects, aims to increase earnings per share (EPS) and long-term shareholder value through enhanced earnings power and cash generation.

Exxon Mobil Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exxon Mobil's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.7% today to 12.1% in 3 years time.
• Analysts expect earnings to reach $42.1 billion (and earnings per share of $10.46) by about May 2028, up from $33.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $53.6 billion in earnings, and the most bearish expecting $36.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, up from 13.6x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Exxon Mobil Future Earnings Per Share Growth

Risks

• Ongoing uncertainty in tariffs and potential increases in OPEC supply are causing significant downward pressure on prices and margins, affecting both revenue and potential earnings.
  
• The strategy of reducing cost per barrel while investing in growth could be threatened if the expected policy support or market developments do not materialize, impacting future earnings.
  
• Reliance on high-value chemical production in China amidst rising trade barriers and geopolitical tensions may limit market growth and reduce net margins.
  
• Short-cycle asset investments may need to be quickly adjusted in response to volatile market conditions, potentially impacting steady growth in cash flow and profit margins.
  
• Long-term financial success is predicated on forecasted market conditions which may not reflect future realities, risking anticipated revenue and earnings growth.

Valuation

• The analysts have a consensus price target of $123.743 for Exxon Mobil based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $140.0, and the most bearish reporting a price target of just $93.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $348.8 billion, earnings will come to $42.1 billion, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $104.71, the analyst price target of $123.74 is 15.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.