Exxon-Mobil, is it a Turnaround or Permanent Decline?

Something rather surprising happened at Exxon-Mobil (NYSE: XOM) during the last two quarters. The revenues actually started growing again after years of steady decline.

The oil giant finished 2016 with revenues of $226.09 billion (€206.79 billion) that grew to $240.67 billion (€220.12 billion) on March 31, 2017. That made for an impressive revenue growth of $14.58 billion (€13.34 billion).

More importantly this was the second quarter of revenue growth; Exxon-Mobil added $1.21 billion (€1.11 billion) in new revenues during fourth quarter 2016. XOM reported $224.88 billion (€205.68 billion) in revenues in September and $225.09 billion (€205.87 billion)in December.

Exxon-Mobil added $14.58 billion (€13.34 billion) in revenues in three months

This means Exxon-Mobil added $14.58 billion (€13.34 billion) in revenues in three months. That’s an impressive growth rate that easily exceeds that of Amazon (NASDAQ: AMZN). For the record, Amazon’s revenues increased by $6.58 billion (€6.02 billion) during first quarter 2017.

Although Exxon-Mobil still has a long way to go to return to its peak performance. The petroleum goliath reported $268.88 billion (€268.88 billion) in revenues in December 2015, and $411.94 billion (€376.77 billion) in December 2014.

Now for the all-important value investor’s question is Exxon-Mobil making money? The answer is yes, according to the ycharts data for March 31, 2017.

Proof that Exxon-Mobil is not Dead Yet

Actually the charts provide a lot of proof that Exxon-Mobil is not dead yet including:

  • A net income of $10.04 billion (€9.18 billion) up from $7.84 billion (€7.17 billion) in December 2016.

  • A profit margin of 3.66%.

  • A free cash flow of $5.283 billion (€4.83 billion) up from $3.509 billion (€3.21 billion) in December 2016.

  • $24.55 billion (€22.45 billion) in cash from operations. That should be compared to $22.08 billion (€20.19 billion) for December 2016.

  • $4.897 billion (€4.48 billion) in cash from operations. This was an increase over $3.657 billion (€3.34 billion) for December 2016.

  • Assets of $344.21 billion (314.82) up from $330.31 billion (€302.11 billion) in December 2016.

Exxon-Mobil has a lot of cash and a lot of float, and that cash and float is increasing. That, and the unpopularity of fossil fuels these days certainly makes it a value investment but it’s also a growth investment. Who knew?

Is Exxon-Mobil still a Safe Investment?

Therefore Exxon-Mobil is still a good investment. It rewarded shareholders with a return on equity of 5.85% on March 31, 2017.

Exxon-Mobil investors are scheduled to enjoy a dividend of 77¢ (€0.70) on May 10, 2017. That dividend will be 2¢ higher than the 75¢ (€0.69) paid out on February 8, 2017. For these reasons I consider Exxon-Mobil a very good income stock but how safe is it?

Not as safe as you might think, the price of a barrel of U.S. crude oil fell to $45.52 (€41.63) a barrel on May 4, 2017, CNBC reported. That marked a 4.8% decline in one day and worse might be yet to come.

The number of U.S. oil-drilling rigs rose by six during the week of May 1, Baker Hughes reported. That increased the total number of U.S. oil drilling outfits to 703 and it was the 16th straight week of increases in a roll.

It looks as if the oil glut is about to get a lot worse and President Trump might be encouraging it. If Donald and Congressional Republicans keep making oil drilling easier, oil supplies will keep growing and prices will keep falling.

This means we might see $30 (€27.44) or even $25 (€22.87) a barrel oil; and a collapse in Exxon-Mobil’s revenues this year. The revenue spurt at Exxon-Mobil might be a fluke that will end soon.

Elon Musk has Some Really Bad News for Exxon-Mobil

If the prospect of an oil glut was not bad enough, Exxon-Mobil’s long term future just got a lot bleaker thanks to Mr. Elon Musk.

A statement about Tesla’s semi-truck that Musk made at a TED talk in Vancouver should scare Exxon-Mobil executives and oil investors to death. The visionary CEO revealed that the Tesla electric semi-truck is for real, Elon has even driven it around the parking lot. His statements about the vehicle are enough to put a shiver down the King of Saudi Arabia’s spine.

“This is a heavy duty long range semi-truck,” Musk said. “It’s like the highest weight capability.”

“With the Tesla semi we want to show that an electric truck actually can out torque any diesel semi,” Musk said. “If you had a tug of war competition the Tesla semi will tug the diesel semi uphill.”

If Musk is right, Exxon-Mobil’s revenues will take a big hit in a few years. Tesla Motors (NASDAQ: TSLA) is planning to market a nonpolluting semi-truck that is more powerful than diesels and runs on a cheaper “fuel:” electricity. To make matters worse, electricity is a “fuel” that trucking companies can manufacture themselves with solar panels, wind mills or fuel cells.

Oil and Exxon Mobil Might be doomed by Electricity

The threat is even greater because the technology in the electric semi can easily be adapted for other vehicles including buses, dump trucks, bulldozers, power shovels, tanks and even locomotives. Musk is threatening one of the biggest markets for oil, diesel fuel here, and he’s not alone news reports indicate that Daimler has also tested an electric semi.

If Musk’s semi is a success we can expect a huge onslaught of new electric vehicles. Other companies are planning huge investments in EVs, including Ford (NYSE: F) which plans to spend $4.5 billion (€4.12 billion) on the technology and Volkswagen (OTC: VLKAY) is planning to spend $2 billion (€1.83 billion) building a network of charging stations for electric cars.

The potential developments in electric vehicles show us that Exxon-Mobil is not a safe long term investment. The market for its products might soon shrink dramatically even as the price of its revenue falls. Own XOM for short-term income but be ready to sell fast, because this company’s revenues and share price will shrink.

This story originally appeared at Market Mad House in slightly different form.

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