Compared to the energy sector, Exxon shares have outperformed its peers over the last three-, six- and 12-month periods as the company’s defensive, integrated business model tends to outperform in periods of falling commodity prices. The company’s stock has also been less volatile than peers due to the company’s low debt, capital discipline and high returns on invested capital.
However, Argus believes that Exxon’s recent outperformance relative to peers is likely to end, given its difficulties in growing reserves and production. There are also concerns that Exxon, in an effort to grow reserves, may pursue an acquisition that could destroy shareholder value, as occurred when the company overpaid for XTO Energy in 2009.
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The oil giant is scheduled to have its annual analyst meeting in New York on March 4. At this event, Exxon is expected to give an update on its strategy and capital investment plans going forward, including a reduction in its capex guidance. Annual capital spending reached its all-time high at $42.5 billion in 2013. The company already has stated that it plans to reduce capex to $37 billion in 2015, but additional reductions are expected at this meeting.
Over the next five years, Exxon has outlined plans to improve profitability in its upstream business, which in 2014 accounted for 85% of total earnings. Management plans to reduce production from lower-margin barrels and to allocate more of its capital budget to North American liquids.
Argus cut its 2015 EPS estimate to $3.26 from $7.61, based on expectations for lower realized liquids prices. This estimate also considers the company’s plan to cut quarterly stock buybacks to $1.0 billion from $3.0 billion. Argus’s initial 2016 EPS estimate is $5.31.
Exxon shares were up around 0.5% at $91.83 in the first half of the trading day. The stock has a consensus analyst price target of $93.63 and a 52-week trading range of $86.03 to $104.76.
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