Oil and natural gas giant ExxonMobil (XOM -3.99%) currently trades in the middle of its 52-week range. The company is coming off a banner 2024 in which it achieved record production levels from key assets and its third-highest profits in a decade. Now, though, there are some clouds on the horizon.
The stock market is struggling amid economic uncertainty, and volatility has recently increased due to tariffs, geopolitical conflicts, and warning signs from historical recession indicators.
ExxonMobil has thrived through the market's ups and downs. For more than four decades, it has paid and raised its dividends without fail. But should consider investors buying ExxonMobil stock now?
Has ExxonMobil's business cycle peaked?
ExxonMobil operates across multiple aspects of the oil and natural gas industry, including exploration, production, refining, and selling products to the market. Its financial success, however, depends primarily on the volumes of fossil fuel it extracts and the prices it can sell those commodities for. Generally, its earnings peak when the economy is strong, people and industries are burning more oil and natural gas, and demand keeps commodity prices high.
During those periods of peak earnings, a stock like ExxonMobil will appear relatively cheap because its price-to-earnings ratio will be lower. Yet the best time to buy the stock isn't when things are great, but during energy sector downturns when earnings and investor sentiment plunge.
ExxonMobil's earnings slipped from $8.89 in 2023 to $7.84 last year, but 2024 was still one of its best years in a decade. Yet, there could be trouble looming. The Federal Reserve Bank of Atlanta estimates that U.S. gross domestic product will contract 1.8% in the first quarter. Additionally, U.S. consumer sentiment has fallen to near its all-time low.
Those indicators don't guarantee a recession, nor do they indicate how severe one may be, but the headwinds could continue pressuring energy demand and prices. Analysts expect ExxonMobil's earnings will slide further in 2025 to $7.50.
Don't worry. ExxonMobil would do fine in a downturn
For proof that ExxonMobil can navigate through the pain of an energy sector downturn, look no further than its dividend. Management has raised its payouts for 42 consecutive years, a streak spanning multiple business cycles and a pandemic that saw oil prices briefly turn negative for the first time.
Financially, its condition is excellent: It boasts a debt-to-capital ratio of just 12.5%, an AA- credit rating (firmly in investment-grade territory), and a hefty $23 billion in cash on the balance sheet.
ExxonMobil also plans to spend $20 billion annually through 2026 on share repurchases to undo the share dilution caused by last year's $59.5 billion all-stock acquisition of Pioneer Natural Resources. Long-term shareholders should cheer for lower stock prices in the meantime, because that will allow the company to retire more shares with those buybacks.
NYSE: XOM
Key Data Points
A larger and more profitable energy company over the long term
Commodity prices and the economy are outside ExxonMobil's control. Investors should focus more on the big-picture points that management can influence, such as the company's oil and gas production. Acquiring Pioneer Natural Resources bolstered ExxonMobil's footprint in the oil-rich Permian Basin, part of the company's plan to grow production from 4.3 million barrels of oil equivalent per day in 2024 to 5.4 million barrels of oil equivalent per day by 2030. It is also working to lower its upstream costs and reduce its breakeven price per barrel so it's more profitable across a broader range of commodity prices.
It believes its emphasis on extracting energy from the Permian Basin and Guyana, and building its liquefied natural gas business, will help it accomplish this. Management has set a goal of growing earnings at an annualized rate of 10% through 2030.
Should you buy the stock now?
ExxonMobil's volatile earnings make valuing the stock difficult. The stock tends to be favored by investors who hold it for its dividend, so the status of its yield can be a rough gauge for its value.
At today's share price, ExxonMobil's dividend yield is 3.3% --better than the stock's lifetime average of 2.5%. Its strong financials mean an abnormally high dividend yield is a buying opportunity, not a red flag to avoid. If the energy giant does achieve its earnings growth targets, shareholders should also enjoy sizable dividend increases and share price appreciation.
Therefore, ExxonMobil looks like a solid buy now. Investors should build a position in it slowly via dollar-cost averaging, however, as the stock could drop further if the economy worsens. Adding shares throughout a downturn could pay off big time on the other side of that rough period.
