ExxonMobil Plans to Invest Heavily and Double Earnings

Are you ready to be intrigued? Then take a look at energy firm ExxonMobil (XOM), which recently detailed its upcoming plans for capital expenditure (CapEx) spending.

The company is planning to shell out some serious money in the next few years, but that’s not all it’s got on tap. ExxonMobil also made some bold claims about the kinds of return it’s expecting on that spending, and the news is pretty big.

I’m mildly bullish on ExxonMobil because it’s selling a product that many markets need. I’m only mildly bullish, however, because of the sheer number of competitors in that space. (See Analysts’ Top Stocks on TipRanks)

Looking at ExxonMobil’s stock chart for the year so far shows a company mainly making gains. The company’s stock price was up over 50% from the start of this year. It’s also trading close to its highs for the year currently.

January saw the company kick things off with a huge spike that lasted well into March. That spike also made $60 a share look credible. A subsequent slump lead to a plateau in the $52-$54 range for the second half of March and most of April.

April’s end saw the stock begin to climb again. Climb it did, until early July, when another leg down kicked in and lasted until late September. That was when the company started the spike that put it at new highs for 2021. It’s started another leg down since, but has held close to $60. (See ExxonMobil stock charts on TipRanks)

ExxonMobil announced that it was establishing annual CapEx spending for the year and used pretty big numbers to do so, too. The company set its spending between $20 billion and $25 billion for the next several years, going through 2027.

That’s actually a step up from earlier projections that called for ExxonMobil to drop between $16 billion and $19 billion on CapEx in 2021. Earlier projections of $20 billion to $25 billion ended in 2025 rather than 2027. Reports note the company plans to put particular focus on “low-carbon businesses.”

What will ExxonMobil get for that big spend? The company made bold claims on that front as well. It asserted that it would be able to double its earnings over the next six years.

The new focus on low-carbon spending seems to be coming from three new members of ExxonMobil’s board of directors, who joined in earlier this year following a proxy battle with shareholders.

ExxonMobil is looking to make substantial gains from projects in the Permian shale patch and South America. It also looks to reduce greenhouse gas emissions generated for oil and gas production as high as 50% by 2030.

Still Keeping the World Running…for Now

The good news is that ExxonMobil’s short-term prospects are pretty good. Say what you will, but the world runs on gasoline, and that’s essentially ExxonMobil’s big stock in trade.

Working in petroleum extraction is something of a growth market these days. Have you seen the cost of a gallon of gas lately? While several other firms are involved in that market, generally, there’s enough business to go around.

After all, ExxonMobil plans to drop between $140 billion and $175 billion just on capital expenditures from 2021-27. That requires you to have that kind of money to begin with.

However, the bad news is that the long-term picture for ExxonMobil is a little less bright. The growth of the electric vehicle market is likely to take a lot of punch out of the petroleum market. Each is a replacement suitable for the other, so when someone buys an electric car, their demand for petroleum plummets accordingly. Every electric vehicle sale is that much less gas sold. That could easily mean less gas sold in another 10 to 20 years.

Making projections that far out gets difficult, however. No one can tell with much certainty what tomorrow’s conditions will be like. Trying to predict 10 years away involves so many variables that most success is almost pure blind luck.

However, there are certainly a lot of factors massing against ExxonMobil, which limits its overall value as an investment for the next few years. Electric vehicles are undercutting it on several fronts. New advances in plastics—like the latest that calls for salmon sperm—are undercutting that market as well.

Wall Street’s Take

Turning to Wall Street, ExxonMobil has a Hold consensus rating. That’s based on six Buys, six Holds, and three Sells assigned in the past three months. The average ExxonMobil price target of $70.47 implies 15% upside potential.

Analyst price targets range from a low of $50 per share to a high of $95 per share.

Concluding Views

ExxonMobil provides a product that is, right now, indispensable. People need gas to get to work and do everything they’d normally do. The supply chain depends on trucks that require gas to work. The petroleum derivatives market is also brisk. That makes ExxonMobil one valuable part of a lot of lives.

The key phrase there is “right now.” That’s also why I’m only mildly bullish. Today it’s a good investment. Sure, it’s trading near the top of its range, and a downturn is comparatively likely. Still, as long as it’s selling a key product in keeping the entire world running, it’s worth looking into.

However, it may not have that same cachet by the time its latest CapEx plan runs out. It may not be enough when its primary stock in trade is strictly high-carbon.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.