One of the biggest and best-known U.S. companies, ExxonMobil Corp. ( XOM), is having a tough time as the XOM stock price is trading at its lowest level since August 2010.
During its January earnings call, the oil giant said it suffered a significant drop in full-year profits in 2019, down from the year before as capital expenditures rose and revenues fell. At the time, share prices fell in Exxon's premarket and day session and since then the stock price for ExxonMobil has continued to tumble.
Once consistently in the S&P 500's top five U.S. companies by market capitalization, the drop in Exxon's market cap now puts it at No. 17, far behind the other mega-cap stocks of Microsoft Corp. ( MSFT), Apple ( AAPL) and Amazon.com ( AMZN).
What is ExxonMobil Worth Today?
Some investors ask: Why is ExxonMobil stock going down? Exxon currently trades around $60, that's down from about $88 in February 2015.
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Like other energy companies such as Chevron Corp. ( CVX), Royal Dutch Shell ( RDS/A) and Conoco Phillips ( COP), Exxon is suffering because the energy industry continues to feel the aftershocks of the global oil price slide from 2014 to 2016. The benchmark West Texas Intermediate crude oil values briefly slid under $30 a barrel in January 2016. Prices rebounded back to around $55 a barrel, but those values are historically weak.
Stewart Glickman, energy equity analyst at CFRA Research, says the outlook for fossil fuel energy has changed.
"This industry has gone from what we would call an era of scarcity, where it was going to be really hard to find that that marginal extra barrel of crude oil, to in this era of abundance," he says, because of the gains in shale oil production.
"There will come a point when that will swing back to scarcity, but we're not there yet. And it doesn't seem like we're on the cusp of that either," he says.
As environmental, social and governance ( ESG) investing becomes more popular, some investors are also shunning fossil fuel companies because of concerns about climate change, he adds.
Exxon has its problems, too. Among the 24 equity analysts that cover Exxon, 16 have a "hold" rating on it, including Glickman. Four analysts have a "buy" rating and three analysts have a "sell" rating. Exxon's stock price fell slightly after Goldman Sachs analyst Neil Mehta recently cut his rating on the energy company to "sell," citing a challenging free cash flow outlook.
[See: 7 Low-Risk Dividend Stocks to Buy for Retirees.]
ExxonMobil Investing Heavily in Production
XOM doesn't have a lot of growth potential, Glickman says, whether it's based on increasing production or expectations of rising oil prices. The company could cut costs to boost earnings power, but the firm has not managed investor expectations well, Glickman adds, pointing to a mixed bag of beating analyst expectations over the past several quarters.
In the past, Exxon kept tight control on costs, but that's not necessarily the case now.
"They've had better periods. Historically, if you go back to when Lee Raymond was running things, I would say it was a more tightly oiled machine," Glickman says, referring to Exxon's former CEO and chairman from 1999 to 2005.
Exxon is outspending its competitors on bigger capital projects to increase oil and natural gas production, but those projects may not start producing for a while, such as a major offshore find in Guyana, he says.
The combination of not much near-term production growth and the likelihood that oil prices won't return to the $90 to $100 barrel levels anytime soon has limited growth investor interest, Glickman says.
John Person, founder of Persons Planet, a trading education and advisory service company, says although institutional shareholders still hold about 55% of Exxon's stock, big institutions haven't had it on their "buy" list for some time now.
Exxon's Perk: Dividend-Paying Stocks
It's still likely widely held household stock because of its strong dividend of 5.8%. The company pays dividends quarterly and its significantly higher than the S&P 500's dividend yield of 1.72%.
Glickman says Exxon's dividend still makes it attractive to income investors, calling the current dividend payment "not bad," but also noting it's been on the high side for them. He also said the company has had a strong record of increasing the dividend.
Goldman Sachs' Mehta says in a research note there are two ways to look at Exxon. Income investors say it remains competitive versus other North American energy and other stocks in the S&P 500. Yet those who look at free cash flow, which was Mehta's reason to downgrade the stock, say Exxon still trades at a premium to its peers, based on several metrics. Those metrics include using the price-to-earnings ratio and earnings before interest, taxes, depreciation, and amortization (EBITDA), which is often used as an alternative for simple earnings.
He wrote in the research note that income investors should consider that Exxon's "dividend yield will not provide a 'floor' if a stock cannot organically pay out the dividend with free cash flow."
Steven Jon Kaplan, CEO of True Contrarian Investments, says XOM is a bargain with prices around 2010 levels and an attractive dividend yield. But he thinks other energy companies are better buys at this time.
[READ 8 High-Yield Stocks With Growing Dividends]
"There has been very heavy buying of many energy companies during the past several months at the heaviest pace in nearly two decades, but unfortunately there has been zero insider buying for Exxon, which had only insider selling several months ago at a significantly higher price," he says.
He also says people who buy it for dividend income must take into consideration the stock price's relatively high fluctuations.
For investors willing to take a chance on Exxon because of the strong dividend and because Exxon's stock price is 42% off of its 2014 high, Person says he might consider buying if share prices dipped to the $56 to $52 area from the current price of around $60. Person says the current P/E ratio is 17.8, which he says is relatively high for the stock and the sector, but lower than rival Occidental Petroleum Corp. ( OXY), which has a P/E of 31.3 because of its acquisition expense.
But Person cautions potential Exxon buyers that they need to watch it carefully. If prices were to continue to fall and close under $45 weekly, he would "exit the stock as the dividend yield would not support the price loss."
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