Exxon Mobil Stock Was Out of Step With Energy Investors in 2019. It Could Rebound Next Year. - Barron's

An Exxon gas station Photograph by David McNew/Getty Images

With the year almost over, we’re taking a look at all 30 stocks in the Dow, starting with the worst performer— Walgreens Boots Alliance —and working our way up to the highest-flying stock in the benchmark—Apple. The ranking may shift before the close of 2019 trading, but the stories behind the stocks shouldn’t.

Exxon Mobil struggled in 2019, along with other oil and gas companies, despite rising oil prices during the year. As of late December, Exxon was up about 3%, well behind the S&P 500’s 28% gain.

The small gain comes after a very rough 2018.

Exxon’s (ticker: XOM) mediocre year came as investors shunned the entire oil and gas sector, particularly companies that continue to spend heavily on expansion projects. Unlike its peers, Exxon has plowed money into growing production, adding projects in Guyana and other countries that could pay off down the road. In the past, these projects would excite shareholders. But energy investors have been more likely to reward companies that are reining in their capital expenditures and paying out large dividends to investors. That’s a reaction to years of weak returns from oil companies that continued to add projects even when the economic returns from them were weak.

Exxon still has a large dividend, with the stock yielding 5%. But its free cash flow has not been covering the dividend payments. In November 2019, Moody’s downgraded Exxon’s credit outlook to Negative from Stable, citing the company’s “substantial negative free cash flow and expected reliance on debt to fund its large growth capital spending program,” while keeping its Aaa rating. That still makes it more creditworthy than competitors in Moody’s eyes, but could portend a downgrade in the future.

Toward the end of 2019, Exxon won a case related to its climate change disclosures, but the challenge showed the company could continue to feel pressure from investors over fossil fuel emissions.

Still, some analysts think 2020 will be a rebound year for Exxon, given growing production in the Permian Basin and the early oil production growth in Guyana that could lead to seven years or more of steady production. Bank of America Merrill Lynch named Exxon its top oil major pick for 2020.

Write to Avi Salzman at avi.salzman@barrons.com

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https://www.barrons.com/articles/exxon-mobil-stock-could-rebound-next-year-51577031686?mod=RTA

2019-12-26 11:00:00Z
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