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ExxonMobil's Profit Dip: Time to Buy the Oil Stock?

Theodore QuinnSunday, Jan 12, 2025 6:34 am ET

4min read

ExxonMobil (XOM), the world's largest publicly traded oil and gas company, recently issued a profit warning for the fourth quarter of 2024. The company expects earnings of $1.76 per share, significantly lower than the $2.48 per share it posted in the year-ago period and the $1.92 per share it earned during the third quarter. This news sent ExxonMobil's stock price down by 1.6% in early trading on Friday, January 12, 2024. However, investors should consider whether this dip presents an attractive entry point for the oil stock.

ExxonMobil's profit decline in the fourth quarter was primarily driven by lower refining margins, which reduced earnings by between $300 million and $700 million. Additionally, the timing of the company's refining business cut an additional $500 million to $900 million from the bottom line. Impairments, including a substantial $2 billion impairment due to regulatory challenges in California, also contributed to the decline in earnings. These unfavourable identified items were partly balanced by positive tax and divestment-related items.

Despite the profit warning, ExxonMobil remains an attractive investment opportunity for several reasons. First, the company's earnings estimates for the third quarter of 2024 are $1.95 per share, representing a year-over-year change of -14.1%. While this is lower than the consensus estimate of $1.88 per share, it is still higher than the earnings estimates of other major oil companies. For instance, Chevron's earnings estimates for the same period are expected to be $3.65 per share, a decline of 11.1% from the year-ago period. Similarly, Royal Dutch Shell's earnings estimates are expected to be $2.15 per share, a decline of 12.5%. Therefore, while ExxonMobil's earnings estimates are lower than its peers, the magnitude of the decline is less significant.

Second, ExxonMobil's stock price has been in negative territory for the year since early May 2023. The profit warning indicates that the company's earnings are expected to be lower than previously anticipated, which can lead to a decrease in investor confidence and, consequently, a drop in the stock price. However, this dip in the stock price presents an opportunity for investors to buy the oil stock at a discounted price.

In conclusion, while ExxonMobil's profit warning for the fourth quarter of 2024 is concerning, it does not necessarily mean that the company is in trouble. The decline in earnings is primarily driven by lower refining margins and impairments, which are temporary issues that can be addressed in the future. Moreover, ExxonMobil's earnings estimates remain higher than those of its peers, and the dip in the stock price presents an attractive entry point for investors. Therefore, investors should consider buying the oil stock on the dip, as it offers a compelling opportunity for long-term growth.

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