ExxonMobil (NYSE:XOM) is poised to profit from a major 30% rise in oil costs within the third quarter, with November 2023 West Texas Intermediate (WTI) oil futures rising from $69.23 per barrel on June 23 to round $90 at the moment. This improve will seemingly result in a major rise in Exxon shares.
The corporate’s free money circulate for the third quarter is predicted to be considerably larger than the earlier quarter, largely as a result of rise in oil costs. Within the second quarter, Exxon generated $5 billion in free money circulate, even after growing its capital expenditures (capex). Within the first half of 2023, Exxon generated $16.4 billion in free money circulate, lower than the $27.74 billion generated throughout the identical interval in 2022, due partly to a big one-time tax cost and elevated capital expenditures.
If Exxon retains its capital expenditures at a secure stage, it can seemingly generate between 50% and 60% of the $22 billion in free money circulate it generated throughout final 12 months’s third quarter. This implies free money circulate for the third quarter of 2023 might vary between $11 billion and $13 billion. If that occurs, Exxon may very well be on monitor to generate $30 billion in international money flows for the primary three quarters of 2023 and maybe as a lot as $50 billion for the complete 12 months. Though this would not match the $62.1 billion in international money flows generated via 2022, it might greater than cowl the $17 billion Exxon plans to spend on inventory buybacks this 12 months.
Exxon’s market cap would seemingly rise to $586.7 billion from its present worth of $464 billion if it generated $44 billion of free money circulate via 2023. This estimate relies on a free money circulate yield of seven.5% or multiplying the free money circulate estimate by 13.3 instances, which suggests a 26.4% chance that Exxon’s inventory value will rise to $147.33 per share.
Along with the potential enhance from FCF, Exxon will seemingly improve its quarterly dividend in late October when it publicizes its subsequent cost. The corporate has a monitor document of elevating its dividend yearly for twenty-four years. If earnings improve to 94 cents quarterly or $3.76 yearly and if the yield reaches 3.0%, Exxon inventory might rise to $125, representing a rise from the present value of $116.92.
Buyers even have the chance to generate further earnings by quick promoting out-of-the-money (OTM) at near-term expiration intervals. For instance, promoting choices with a strike value of $111.00 expiring on October 13 might present a right away return of 0.61% for simply three weeks. If this technique was repeated each three weeks for a 12 months (17 instances), the anticipated annual return might exceed 10%. This technique means that traders can earn vital returns whereas ready for Exxon’s third-quarter outcomes, particularly since there’s a robust chance that Exxon inventory nonetheless has room to develop on account of robust free money circulate and elevated dividend potential.
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