Exxon Mobil stock (XOM) seems poised to benefit from President-elect Trump’s anticipated deregulation wave, offering a compelling opportunity for investors following its prolonged underperformance over the past year. Specifically, XOM shares have struggled recently, primarily due to weak oil prices, which have weighed heavily on the energy sector. Despite these challenges, Exxon Mobil remains highly profitable, with free cash flow expected to exceed $30 billion annually in the near term. Combined with the potential for a regulatory environment favorable to energy companies under Trump, I remain bullish on XOM stock.
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Why XOM Stock Has Been Under Pressure Over the Past Year
Before we look into the potential impact of deregulation, I think it’s essential to provide some context and mention the factors behind Exxon Mobil’s recent struggles. The main catalyst here has been soft oil prices, which have remained subdued due to global economic and geopolitical tension and fluctuating demand-supply dynamics. For much of 2024, concerns over potential recessions in key economies muted demand for oil, while increased production from certain OPEC nations added to the supply glut. These pressures have, of course, directly affected XOM’s share price due to its heavy exposure to upstream oil operations.
Other factors also played a role. Refining margins have tightened, with global capacity additions outpacing demand growth, particularly in the Energy Products segment. Exxon Mobil’s recent earnings reports clearly highlight that weaker refining margins, along with maintenance-related costs and regulatory hurdles, have pressured profitability, further adding pressure to the stock.
XOM Remains a Free Cash Flow Machine
Despite these challenges, Exxon Mobil continues to deliver robust earnings and free cash flow, one of the two key drivers behind my bullish outlook on the stock, the other being the anticipated deregulation. In fact, the company remains a free cash flow machine, even though it’s battling with weakening margins. In its Q3 results, for instance, while earnings declined by nearly 14%, they still remained very strong at $8.6 billion, driven by improved product yields and cost savings across its global operations.
The company’s free cash flow for the quarter was even more impressive, coming in at $11.3 billion and bringing the year-to-date total to $26.4 billion. For the full year, consensus estimates project free cash flow reaching $32.3 billion, translating to a free cash flow yield of 14% at XOM’s current price levels. Wall Street analysts also forecast free cash flow to remain above $30 billion annually in the medium term, with projections of $38 billion by 2026. I believe Trump’s upcoming deregulation campaign will significantly contribute to this optimistic consensus.
Trump’s Deregulation Wave: A Catalyst for XOM
Back to my core argument, I believe that XOM’s prospects look even brighter under Trump’s upcoming presidency, as the energy sector anticipates a reversal of several Biden-era policies that have long been known to have hurt companies in the space. Trump has unquestionably signaled his intent to roll back emissions-related regulations and expand fossil fuel production, which should benefit companies like Exxon Mobil directly.
For example, the Trump administration is anticipated to ease restrictions on drilling in federal lands and waters, allowing Exxon Mobil to again leverage its expertise in upstream operations more effectively. On top of that, potential changes to permitting processes could accelerate the development of new projects, such as those in the Permian Basin and Guyana, two of XOM’s most profitable regions.
Then, the Biden administration’s focus on renewable energy and stringent methane regulations added costs for oil and gas producers, a burden that Trump’s proposed deregulations aim to lift as well. Lower compliance costs and improved operational flexibility should boost Exxon Mobil’s margins and back its ambitious growth plans. If Trump reinstates favorable tax treatments for fossil fuel investments, then Exxon Mobil will gain even more. Combine these points with the fact that XOM’s net debt/EBITDA stands near a 20-year low of 0.2X (i.e., significant financial flexibility), and you can see why XOM’s investment case seems to enjoy an excellent setup today.
Is XOM Stock a Buy?
Wall Street analysts appear fairly optimistic about Exxon Mobil’s outlook as well. Specifically, XOM stock features a Moderate Buy, with analyst ratings now consisting of 12 Buy, seven Hold, and one Sell ratings over the past three months. At $132.43, the average XOM stock price target implies an upside potential of 24.58% from its current levels.
For the best guidance on buying and selling XOM stock, look to Devin McDermott. He is both the most accurate and most profitable analyst covering the stock (on a one-year timeframe), boasting an average return of 21.83% per rating and an outstanding success rate of 72%.
Final Thoughts
In summary, Exxon Mobil seems poised for a strong rebound, particularly with the potential tailwind of deregulation under the incoming Trump administration. Despite recent challenges from low oil prices and tightening margins, the company’s ability to generate massive free cash flow is commendable. Given this core strength and a favorable policy environment likely on the horizon, I believe that XOM stock presents a compelling case for investors looking to increase their exposure in the energy sector following this past year’s prolonged underperformance.
