Oil and gas giant Exxon Mobil (click ticker for report: XOM) reported poor second-quarter earnings Thursday. Excluding a net gain of $7.5 billion associated with divestments and tax-related items, second quarter earnings were $8.4 billion, falling from $10.68 billion in the year-ago period and coming in below consensus expectations. Though the weaker earnings could almost have been expected given the drop in oil prices toward the end of the period, we nonetheless were less-than-thrilled by the performance. We don’t expect to make a material change to our fair value estimate, however.
Exxon continues to invest at a rapid pace, with the firm spending a record $18.2 billion in capital and exploration expenditures during the first six months of the year. The oil and gas giant expects to invest a whopping $37 billion per year over the next five years to meet growing energy needs. Though we’re confident these investments will bear fruit in the long run, any near-term boost from them remains muddied by global economic uncertainty and the resulting impact on energy prices. Further, the company’s recent acquisition of XTO Energy in 2010 made it the largest domestic natural-gas producer, and such a position has only hurt profitability (given recent natural gas price declines).
Still, Exxon continues to be shareholder friendly. However, given the company’s share price relative to our fair value estimate, we’re not huge fans of its decision to buy back stock. We’d instead like to see the firm raise its dividend, which continues to trail peers—ConocoPhillips (click ticker for report: COP), Chevron (click ticker for report: CVX), and Royal Dutch Shell (click ticker for report: RDS)—in terms of yield. We’re not compelled to own Exxon at these levels.