Why did ExxonMobil shares soar today?
Shares of oil inventory indicator ExxonMobil (NYSE: XOM) hit a spurt on Friday, rising 4.3% through noon ET after reporting a mixed quarter in which sales significantly underperformed expectations, but earnings just as significantly exceeded them.
Heading into its second-quarter 2022 fiscal report, analysts had predicted Exxon would earn $3.74 a share on sales of $132.7 billion. It missed that latest projection, reporting only $115.7 billion in sales, but it crushed the old projection, earning $4.14 per share.
According to data from S&P Global Market Intelligence. Second quarter 2022 earnings were up more than 280% year-over-year. With net income of $17.85 billion, Exxon eclipsed its previous record ($15.91 billion in the second quarter of 2012) by 12%.
And while sales beat analysts’ expectations, they were still up 71% year over year.
Free cash flow for the quarter – although not as robust as earnings calculated using generally accepted accounting principles (GAAP) – was nevertheless quite good. By subtracting $3.8 billion in capital expenditures from $20 billion in operating cash flow, Exxon generated nearly $16.2 billion in cash earnings during the quarter.
This means that, so far this year, Exxon has generated positive free cash flow of $27.1 billion, which is actually ahead the company’s reported net income of $23.1 billion for the first half.
It’s hard to overstate how remarkable it is for an oil company to generate more cash profit it brings as accounting profit. The situation is almost always the opposite with the oil companies, one of the reasons why I have about never buy oil stocks.
And yes, in this particular case, it’s probably just a fluke, and a function of oil prices climbing past $100 a barrel in response to economies recovering from the depths of the pandemic and the boycott of Russian oil during the war in Ukraine. There is no guarantee that the situation will last.
That being said, even I have to admit it: analysts predicting that ExxonMobil will generate almost $52 billion in profits free movement of capital this year, and its stock at 7.8x free cash flow and paying 3.8% the dividend yield, it looks really tempting.
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