Is Exxon Mobil Corporation (NYSE: XOM) Ready To Rally Higher In 2018?

January 08, 2018, 18:18 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Exxon Mobil Corporation (NYSE: XOM) is set to benefit significantly from the recent passage of the tax reform bill given that it one of the highest taxed American corporations. The company is also restructuring both its upstream and downstream operations, which will increase its overall cash flow by increasing its revenues.

Article Summary

Exxon has underperformed its competitors in 2017.

The company is merging its downstream operations into one entity.

The company is set to benefit immensely from the recent tax reform bill.

Here’s the trading report on XOM.

The recent rally in global oil prices has not impacted Exxon positively given that the company’s stock price has lost about 7.5% of its value this year, while competing firms have rallied higher boosted by the higher prices. Chevron Corporation (NYSE: CVX), which is a major competitor has rallied to a 3-year high, while Royal Dutch Shell plc (ADR) (NYSE: RDS.A) has also risen significantly over the past year.

The company’s recent performance is not surprising as Exxon has always performed well in difficult economic conditions, while at the same time performing poorly in booming economic times. However, the company is a stable performer given that it has hiked its dividend for 34 consecutive years through the boom and bust economic cycles as well as the cyclical phases in the oil industry.

Exxon’s CEO Darren Woods has decided to merge the company’s two downstream divisions in order to generate more cash flows and to boost the company’s bottom line. The business divisions being merged are the refining and supply division as well as the fuel, lubricants and specialties marketing company.

By merging the two downstream companies into a single entity, Exxon will create operational efficiencies that will boost its bottom line. The move will also create some stability for the company’s operations by cushioning it against the volatility that characterize the upstream business.

The company is also planning to invest heavily in shale oil production as from next year, which would reduce its exposure to off-shore drilling, which typically involves high operation costs.

Exxon is also set to benefit immensely from the implementation of the new tax reform bill given that its effective tax rate will be reduced from the current 40% to 21% as from 2018. The tax benefits and the merger of the downstream businesses as well as investments in shale oil production are likely to trigger a rally in Exxon stock price in 2018.

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