Monday, 5 February 2024

Numbers Don’t Lie: ExxonMobil Is the Top Stock in the Oil Patch.

by Rose White

<div>Numbers Don't Lie: ExxonMobil Is the Top Stock in the Oil Patch.</div>

ExxonMobil (NYSE: XOM) is the best company in the oil business. That was abundantly clear from its 2023 financial results. The energy behemoth delivered industry-leading financial results across most of the sector’s most important metrics.

The leading oil stock is in an excellent position to continue its dominance in 2024 and beyond. Here’s a look at what’s fueling ExxonMobil’s strong performance.

Leading the pack

ExxonMobil recently reported its fourth-quarter and full-year financial results for 2023. They were superb. The oil giant recorded an oil-industry-leading $36 billion in earnings during 2023. It also generated a whopping $55 billion in cash flow from operations. The company has now grown its earnings at an astounding 40% compound annual rate from its pre-pandemic level in 2019 while growing its cash flow from operations at a more than 15% compound annual rate. Those growth rates led its peer group, which is impressive considering that Exxon is the biggest of its rivals.

Those weren’t the only metrics where Exxon leads its peers:

Image source: ExxonMobil.

As that slide shows, Exxon bought back a peer-leading $17.5 billion of stock last year. It also paid a massive $15 billion in dividends and recently delivered its peer-leading 41st year of dividend growth. Exxon has also delivered the most structural cost savings among its peers since 2019 while producing the highest compound average shareholder return in its class.

CEO Darren Woods commented on the factors fueling Exxon’s success in its fourth-quarter earnings press release. Woods stated:

Our consistent strategy and execution excellence across the business delivered industry-leading earnings and enabled us to return more cash to shareholders than our peers in 2023. These results demonstrate the fundamental improvements we’ve made to our business, reflecting our progress in high-grading our portfolio through investments in advantaged projects and select divestments, while, at the same time, driving a higher level of efficiency and effectiveness throughout the business.

As Woods notes, a key driver of Exxon’s ability to deliver peer-leading performance is the strength of its portfolio. Exxon has focused on investing in its highest-return assets, led by the four growth pillars of its portfolio: the Permian, offshore Guyana, Brazil, and LNG. The company grew its production from Guyana and the Permian by 18% last year, which helped fuel its strong earnings and cash flow.

Positioned to continue thriving

Exxon continues to focus its investments on its best assets, which puts it in a strong position to maintain its leadership in the oil patch. The company spent $26.3 billion on capital projects last year. That was slightly ahead of the top end of its guidance range because the company chose to opportunistically accelerate activities in its Permian and Guyana assets, where it earns the highest returns. Exxon expects to spend $23 billion-$25 billion on high-return capital projects this year and $22 billion-$25 billion from 2025 through 2027.

The company also continues to make moves that strengthen its portfolio. Last year, it sold $4.1 billion of assets, including its East Texas upstream assets in the fourth quarter. It’s replacing those assets with better ones.

The biggest addition should come later this year when Exxon completes its $64.5 billion acquisition of Pioneer Natural Resources. The deal will more than double its footprint in the Permian Basin. That increased scale will further enhance Exxon’s returns in the region. It expects to earn double-digit returns as it recovers more resources more efficiently.

Exxon’s focus on making high-return investments and strengthening its already advantaged portfolio should enable it to continue producing peer-leading earnings and cash flow. That should also allow it to return lots of cash to shareholders through a growing dividend (Exxon recently increased its payout by another 4%) and meaningful repurchases. That combination of earnings growth and rising cash returns should give Exxon the fuel to produce strong total returns for investors in the future.

A top-tier oil stock

Exxon made the most money in the oil patch last year. It has now delivered peer-leading earnings and cash flow growth since 2019, fueled by its focus on investing in its best assets. It’s in an excellent position to continue delivering industry-leading growth, driven by its returns-focused capital program and pending acquisition of Pioneer Natural Resources. These factors make Exxon stand out as the top stock to buy in the oil patch for investors seeking to anchor their portfolio with the industry’s leader.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Pioneer Natural Resources. The Motley Fool has a disclosure policy.