We are increasing our fair value estimate slightly to $82 from $81 for the narrow-moat firm.
Allen Good, CFA
02:50 AM | Email Article
posted strong first-quarter results with gains in every segment with the exception of chemicals which saw slight declines. Total earnings surged to $4.0 billion from $1.8 billion last year on the back of the upstream segment which swung to a profit of $2.3 billion from a loss of $76 million last year thanks to improvement in oil prices. Production volumes slipped 4% largely on entitlement effects, the result of higher oil prices. Downstream earnings benefited from increased operational efficiency rising to $1.1 billion from $906 million last year. The chemicals segment was the lone outlier posting a decrease in earnings to $1.2 billion from $1.4 billion the year before on lower margins and increased turnaround activity. Cash flow of $8.9 billion including asset sale proceeds of $700 million during the quarter was more than sufficient to cover capital spending and shareholder distributions.
Allen Good, CFA, is an energy strategist for Morningstar.
Exxon maintains one of the lowest dividend breakeven of the group at about $40 per barrel, ensuring its safety in almost any price environment. Dividend growth the last two years, however, has been relatively paltry compared with historical rates. For the second consecutive year, Exxon increased the dividend only 2.7%, well below the historical average of approximately 6%. We think this reflects the firm’s more cautious outlook on commodity prices and its desire to retain flexibility to make opportunistic acquisitions as opposed to the its cash flow generating ability. While its also refrained from repurchasing shares as well, we expect both dividend growth and repurchase to occur in the coming years given our forecast for increasing free cash flow.
Our fair value increases slightly to $82 from $81 after incorporating expected U.S. tax changes. Our narrow moat rating is unchanged.
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