Will Recent News Hurt Exxon Mobil?

With shares of Exxon Mobil (NYSE:XOM) trading around $94, is XOM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Exxon Mobil is a manufacturer and marketer of commodity petrochemicals like olefins, aromatics, polyethylene, and polypropylene plastics, as well as a range of specialty products. The company has a number of divisions and affiliates with names that include ExxonMobil, Exxon, Esso, and Mobil, which operate or market products in the United States and other countries. Exxon Mobil’s principal business is energy, involving the exploration for and production of crude oil and natural gas; manufacture of petroleum products; and transportation and sale of crude oil, natural gas, and petroleum products.

Exxon Mobil Corp., the world’s largest publicly traded oil company by market value, posted lower-than-expected quarterly profit on Thursday as it failed to offset declining production with fresh reserves. Shares of Exxon fell nearly 2 percent to $93.28 in morning trading. The problem of declining production has become endemic for multinational energy groups, with legacy oil and natural gas wells producing much less. That has fueled massive and risky exploration projects in an attempt to find new wells in remote regions. Exxon’s oil and natural gas production fell 1.8 percent from year-ago levels, with natural gas production falling around the world and oil output slipping in half the regions where the company operates.

T = Technicals on the Stock Chart Are Mixed

Exxon Mobil stock has been surging higher in recent quarters. However, the stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Exxon Mobil is trading between its rising key averages, which signal neutral price action in the near-term.

XOM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Exxon Mobil options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Exxon Mobil options

17.37%

33%

31%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Exxon Mobil’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Exxon Mobil look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-13.18%

-14.35%

-54.55%

6.00%

Revenue Growth (Y-O-Y)

-16.08%

-2.41%

-16.41%

-12.29%

Earnings Reaction

-1.49%*

0.91%

-1.08%

-1.52%

Exxon Mobil has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Exxon Mobil’s recent earnings announcements.

* As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has Exxon Mobil stock done relative to its peers, BP (NYSE:BP), Chevron (NYSE:CVX), Royal Dutch Shell (NYSE:RDSA), and sector?

Exxon Mobil

BP

Chevron

Royal Dutch Shell

Sector

Year-to-Date Return

-7.41%

-2.92%

-7.35%

-0.21%

-3.47%

Exxon Mobil has been a poor relative performer, year-to-date.

Conclusion

Exxon Mobil is a provider of essential commodity products and services that people and companies use around the world. The company reported fourth-quarter earnings that were lower-than-expected. The stock has been surging higher in recent quarters, but is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has left investors disappointed with recent earnings announcements. Relative to its peers and sector, Exxon Mobil has been a weak year-to-date performer. WAIT AND SEE what Exxon Mobil does this quarter.

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