ExxonMobil shares dropped early Friday, even though the company reported its best quarterly results in years. Earnings were slightly below what Wall Street had expected.
The company posted adjusted earnings of $3.52 per share, a big jump from $1.64 a year ago. Revenue rose to $116.02 billion, compared to $81.51 billion last year. Analysts were looking for earnings of $3.56 per share on $109.9 billion in sales.
Shares dropped 2.5% in premarket trading. This likely reflects high expectations after the stock climbed 30% this year, mostly because of rising oil prices linked to the conflict in Iran. The stock hit a record high in March and has moved up and down with news about the war. Now, some analysts are wondering how much longer the rally will last.
As expected, Exxon’s earnings and revenue were its best since commodity prices jumped after Russia invaded Ukraine in 2022. The company reported free cash flow of $17.2 billion for the quarter, which was more than its total from the previous three quarters combined and above analyst estimates of nearly $16 billion.
Chief executive Darren Woods said the quarter was marked by disruption but also by strong execution. He credited the company’s performance to its strong portfolio and operating model, which have been developed over many years, and noted that market conditions were also supportive.
Investors are watching to see how Exxon will use its cash windfall. Most expect the company to focus on buybacks and dividend increases, rather than making big acquisitions, since that is what investors usually prefer.
Last week, Bank of America lowered its outlook on Exxon. The firm expects the stock could lose momentum as the conflict in Iran eventually winds down, though it is not clear when that will happen. Bank of America also noted there is limited short-term upside because about 20% of Exxon’s Middle East production is still shut down, and it is unclear when output in Qatar will resume. Still, the firm slightly raised its price target for the stock.
Raymond James also urged caution. The firm noted that Exxon keeps telling investors it will stick to its planned capital spending instead of making risky acquisitions with its cash windfall. Raymond James kept a neutral rating on the stock, saying its current price already reflects its strengths.
