The long time powerhouse in the oil and gas industry, Exxon Mobil (NYSE: XOM) has had a tough time lately. Last year, 2017, wasn’t kind to shareholders. The beginning of 2018 looked promising, but then the company announced earnings and the stock tanked.
What is going on with Exxon Mobil? Is this stock a has-been and investors should look for other companies who are growing at a rapid rate? Or is the drop in Exxon Mobil stock price a perfect time to buy shares at a discount?
Here are the reasons why I believe an investment in Exxon Mobil is a smart move to make with your money.
The Recent History Of Exxon Mobil
The past few years have not been kind to Exxon or any oil and gas stock. Crude oil prices were in a downward trend and only recently began to stabilize. Falling oil prices are bad for these companies because they use the higher price to fund capital expansion and pay shareholder dividends.
Since oil prices were falling, many of these companies had to go into debt in order to expand and pay dividends. And we all know that a company in a mountain of debt is bad.
Luckily, Exxon is in excellent financial shape. They did add debt from 2014 through 2017, but now that oil prices have stabilized, they have enough free cash flow to pay their dividend without going into debt.
This is important to know, as no one wants to invest in a sinking ship.
The start of 2018 looked promising for Exxon Mobil, with shares climbing to $88. But then the company reported earnings and the bottom fell out. The stock dropped over $12 on heavy trading.
On the surface, the results looked concerning. Earnings per share came in at $0.88, missing estimates by $0.15. Revenues were up 18% but missed by $8 billion. Many analysts and investors were confused with what was going on.
How could this powerhouse have missed on estimates so badly? The truth is, the company is pouring a lot of money into capital expansion, which in the long term will only help make this company stronger.