Market Snapshot
briefing.com
| Dow | 34150.12 | +64.13 | (0.19%) | | Nasdaq | 11812.45 | +227.89 | (1.97%) | | SP 500 | 4121.58 | +44.98 | (1.10%) | | 10-yr Note | +9/32 | 3.40 |
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| | NYSE | Adv 2143 | Dec 769 | Vol 1.0 bln | | Nasdaq | Adv 3045 | Dec 1466 | Vol 6.3 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Consumer Staples, Industrials |
| | Weak: Energy |
Moving the Market
-- Strong rebound effort took root following Fed Chair Powell's press conference when did not go out of his way to shoot down the recent rally
-- Digesting the expected 25 basis point rate hike to the target range for the fed funds rate
-- Mixed reactions to mixed earnings news
-- A sharp decline in Treasury yields following FOMC policy decision and Powell's press conference
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Closing Summary
01-Feb-23 16:25 ET
Dow +6.92 at 34092.91, Nasdaq +231.77 at 11816.33, S&P +42.61 at 4119.21
[BRIEFING.COM] Today's trade looked a lot different at the open compared to where things ended up. The main indices moved mostly sideways, pinned below their flat lines, for the majority of the session as investors anxiously awaited the FOMC policy decision at 2:00 p.m. ET and Fed Chair Powell's press conference at 2:30 p.m. ET.
The market saw some whipsaw action immediately following the FOMC's unanimous decision to raise the target range for the fed funds rate by 25 basis points to 4.50-4.75%, as expected. The general tone shifted markedly, however, when Fed Chair Powell started speaking at 2:30 p.m. ET.
Mr. Powell acknowledged that the "Full effects of rapid tightening so far have yet to be felt and we have more work to do." He indicated that core services inflation is still running too high, which creates a basis for ongoing rate hikes. Overall, though, Mr. Powell was generally encouraging about the emerging signs of disinflation.
Importantly for market participants, he did not go out of his way to shoot down the recent rally effort by condemning loosening financial conditions and maintained that he thinks there is a path to getting inflation back down to 2.0% without a really significant economic decline or significant increase in unemployment.
The stock market surged to session highs during the press conference before ultimately pulling back and settling below those levels. The main indices all closed in positive territory, led by the Nasdaq with a 2.0% gain. The S&P 500 for its part closed above the 4,100 level.
Just about everything came along for the steep rise, but mega cap leadership was integral to index level gains. The Vanguard Mega Cap Growth ETF (MGK) closed with a 1.9% gain versus a 1.0% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.1% gain in the S&P 500.
Semiconductors were another pocket of strength in the market today following a better-than-expected earnings report and better-than-feared outlook from Advanced Micro Devices (AMD 84.64, +9.49, +12.6%). The PHLX Semiconductor Index rose 5.2% by the close.
Ten of the 11 S&P 500 sectors closed with a gain, led by information technology (+2.3%), consumer discretionary (+1.9%), and communication services (+1.3%). The energy sector (-1.9%) was the lone holdout in negative territory as oil prices continued to retreat today. WTI crude oil futures fell 2.7% to $76.82/bbl.
Treasuries rallied following the FOMC decision and subsequent press conference. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, fell ten basis points to 4.11%. The 10-yr note yield fell 13 basis points to 3.40%. The U.S. Dollar Index fell 0.9% to 101.18.
- Nasdaq Composite: +12.9% YTD
- Russell 2000: +11.3% YTD
- S&P Midcap 400: +10.9% YTD
- S&P 500: +7.3% YTD
- Dow Jones Industrial Average: +2.9% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -9.0%; Prior 7.0%
- January ADP Employment Change 106K (Briefing.com consensus 170K); Prior was revised to 253K from 235K
- January IHS Markit Manufacturing PMI - Final 46.9; Prior 46.8
- December Construction Spending -0.4% (Briefing.com consensus 0.0%); Prior was revised to 0.5% from 0.2%
- The key takeaway from the report is that new single family construction continued to decline, clipped by higher interest rates that are making construction projects more expensive to finance at a time when broader economic activity is slowing due in part to the higher interest rates.
- January ISM Manufacturing Index 47.4% (Briefing.com consensus 48.0%); Prior 48.4%
- The key takeaway from the report is that manufacturing activity contracted in January for the third straight month, demonstrating that the cumulative effect of rate hikes around the globe is adversely impacting demand, evidenced by the fifth straight contraction in the new orders index.
- December JOLTS - Job Openings 11.012 mln; Prior was revised to 10.440 mln from 10.458 mln
Market participants will receive the following economic data tomorrow:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 201,000; prior 186,000), Continuing Claims (prior 1.675 mln), preliminary Q4 Productivity (Briefing.com consensus 2.5%; prior 0.8%), and preliminary Q4 Unit Labor Costs (Briefing.com consensus 1.5%; prior 2.4%)
- 10:00 ET: December Factory Orders (Briefing.com consensus 2.2%; prior 1.0%)
- 10:30 ET: Weekly natural gas inventories (prior -91 bcf)
Cardinal Health (CAH), ConocoPhillips (COP), Merck (MRK), Bristol-Myers (BMY), Honeywell (HON), Eli Lilly (LLY), and Estee Lauder (EL) are among the more notable names reporting earnings ahead of tomorrow's open.
Market continues to climb ahead of close
01-Feb-23 15:30 ET
Dow +79.20 at 34165.19, Nasdaq +241.65 at 11826.21, S&P +48.93 at 4125.53
[BRIEFING.COM] Fed Chair Powell's press conference concluded a short time ago. The main indices pulled back a little bit from session highs, but have maintained their positions above their flat lines. The S&P 500 is comfortably above the 4,100 level.
Treasury yields took a sharp turn lower while Mr. Powell was speaking. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, is dropped 12 basis points 4.09%. The 10-yr note yield fell 14 basis points to 3.39%.
The U.S. Dollar Index also took a sharp turn lower, down 1.0% to 101.08.
Market participants will receive the following economic data tomorrow:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 201,000; prior 186,000), Continuing Claims (prior 1.675 mln), preliminary Q4 Productivity (Briefing.com consensus 2.5%; prior 0.8%), and preliminary Q4 Unit Labor Costs (Briefing.com consensus 1.5%; prior 2.4%)
- 10:00 ET: December Factory Orders (Briefing.com consensus 2.2%; prior 1.0%)
- 10:30 ET: Weekly natural gas inventories (prior -91 bcf)
Market charges higher
01-Feb-23 15:05 ET
Dow +64.13 at 34150.12, Nasdaq +227.89 at 11812.45, S&P +44.98 at 4121.58
[BRIEFING.COM] The stock market has been charging higher as Fed Chair Powell gives his press conference. All the major indices are comfortably in positive territory.
Mr. Powell said "I still think and continue to think there is a path to getting inflation back down to 2% without a really significant economic decline, or significant increase in unemployment."
Mega cap leadership is integral to the recent upside moves. The Vanguard Mega Cap Growth ETF (MGK) is up 1.7% versus a 0.8% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.0% gain in the S&P 500.
Ten of the 11 S&P 500 sectors reached positive territory, leaving energy (-1.6%) alone in the red.
FOMC raises funds rate 25 bps, thinks further increases will be appropriate
01-Feb-23 14:25 ET
Dow -320.60 at 33765.39, Nasdaq +11.31 at 11595.87, S&P -13.99 at 4062.61
[BRIEFING.COM] After jostling around the tech-heavy Nasdaq Composite (+0.10%) is now in positive territory after the release of the Fed's latest policy decision wherein the Committee decided to raise the target range for the federal funds rate 25 basis points to 4-1/2 to 4-3/4 percent.
Further, the FOMC said recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.
Additionally, the Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
Currently, the yield on the benchmark 10-yr note is down about 3 basis points to 3.481%.
Gold slightly lower ahead of Fed decision
01-Feb-23 13:55 ET
Dow -326.68 at 33759.31, Nasdaq -29.77 at 11554.79, S&P -19.67 at 4056.93
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-0.26%) hosts the shallowest declines.
Gold futures settled $2.50 lower (-0.1%) to $1,942.80/oz ahead of the upcoming Fed decision.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $101.75.
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Market staring at a big hump day
It is Wednesday, otherwise known as Hump Day for the week, yet there is a big hump for the market to get over today. That hump is the Federal Open Market Committee (FOMC) meeting and Fed Chair Powell's press conference.
In truth, the FOMC decision at 2:00 p.m. ET is not the hump. Market participants widely expect the FOMC to raise the target range for the fed funds rate by 25 basis points to 4.50-4.75%. The hump is the press conference at 2:30 p.m. ET and what Fed Chair Powell says.
Will he make a concerted effort to push back against the easing of financial conditions, which are the offshoot of falling Treasury yields and rising stock prices, and the market's expectation that the Fed will soon pause its rate hikes and then eventually start cutting rates before the end of the year?
The answer to those questions will be the late-afternoon drivers for the stock market, which also has the earnings report from Meta Platforms (META) to contend with after the close, earnings reports from Apple (AAPL), Alphabet (GOOG), and Amazon.com (AMZN) after Thursday's close, and the December Employment Situation Report before Friday's open.
Not wanting to get too far ahead of ourselves, though, the market has plenty to contend with this morning. There has been a rush of earnings reporting since yesterday's close.
Those reports and the accompanying guidance in aggregate were mixed at best. Some of the post-earnings winners in pre-market action include Advanced Micro Devices (AMD), Peloton (PTON), Stryker (SYK), and Mondelez International (MDLZ); meanwhile, some of the more notable pre-market losers include Snap (SNAP), Match Group (MTCH), Waste Management (WM), and Electronic Arts (EA).
Beyond the earnings news, there was a weaker-than-expected Caixin Manufacturing PMI report out of China, some pleasing CPI and core-CPI inflation data out of the eurozone, and a weaker-than-expected ADP Employment Change Report for January.
Briefly, the ADP report showed an estimated 106,000 jobs were added to private-sector payrolls (Briefing.com consensus 170,000) following an upwardly revised 253,000 (from 235,000) in December. ADP attributed the soft January number largely to the effects of weather disruptions during the survey week and noted that hiring was stronger during other weeks of the month, matching the strength seen late last year.
That clarification seemed to dampen the market's enthusiasm for the soft number, which at first blush would support the narrative that it creates another basis for the Fed to pause its rate hikes soon.
Then again, it is fair that one would set today's reading aside knowing that the market will hear directly from the FOMC and the Fed Chair at 2:00 p.m. ET and 2:30 p.m. ET, respectively.
So, that gets us back to "the hump." Like everyone else, we are keenly interested in what the Fed Chair will say, but we are more interested in how the market reacts to what the Fed Chair says.
It is possible that Mr. Powell will walk a hawkish line, but it is also possible that the market will denounce his views in a counterpunch to the Fed's credibility. That is, the market may just remain resigned to fight the Fed. Any fighting spirit in the wake of a hawkish-minded Fed Chair will manifest itself in a weakening dollar, a nonplussed reaction in the Treasury market, and presumably more resilience than one might expect to see in the stock market.
Of course, if the Fed Chair chooses not to walk a hawkish line, then the stock market is apt to see a tacit blessing to keep rallying -- or at least to maintain an inclination to buy on weakness, assuming the impending earnings results from Meta Platforms, Apple, Alphabet, and Amazon.com don't lead the earnings growth outlook astray.
Those are some other humps the stock market needs to get over. The big hump, though, lies straight ahead.
Currently, the S&P 500 futures are down 11 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 15 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 152 points and are trading 0.4% below fair value.
-- Patrick J. O'Hare, Briefing.com
Electronic Arts sells off as Q4 guidance fails to score any points with investors (EA)
Electronic Arts (EA -12%) is selling off today despite registering a double-digit earnings beat in Q3 (Dec) as Q4 (Mar) guidance fails to score any points with investors. EA expects EPS of $0.05-0.20 and net bookings of $1.675-1.775 bln in Q4, coming up considerably short of analyst targets. The weak outlook stems primarily from EA's decision to delay the release of one of its highly anticipated titles, Star Wars Jedi: Survivor, by six weeks, causing net bookings from the game to shift into 1Q24 (Jun).
Furthermore, EA also stopped development on its mobile games Apex Mobile Legends and Battlefield Mobile due to a few factors. Alongside the fact that team-based gameplay not translating well to mobile devices or retaining enough players for games relying heavily on teamplay, EA launched its mobile titles into a soft market.
Over the past few quarters, we heard from rival Take-Two (TTWO) that mobile gaming is experiencing pronounced softness due to macroeconomic factors clipping in-app purchases. EA also touched on an unfavorable mobile market in recent quarters but was excited at the possibility of mobile remaining the largest platform in the games business and an expansion in multiplayer for its major franchises like Apex. As such, its decision to stop development just three months after these comments comes as a shock to investors.
- At the same time, Q3 results did not live up to expectations. EA stated that its Q3 guidance was based on five underlying assumptions: an expanding player network, healthy engagement metrics, strong momentum for FIFA, new releases, and Apex enduring typical seasonal lows. While EA did achieve new highs in its player network, sustained favorable engagement trends, and saw excellent growth in its FIFA franchise, net bookings of $2.34 bln, a 9.1% decline yr/yr, still did not meet expectations. Likewise, the performance of new games was below anticipated levels, underpinning challenging market dynamics.
- As a result, EA implemented measures during the quarter to cut costs and reduce the impact on its profitability. Specifically, EA moderated hiring and prioritized its variable spending in Q3, helping reduce costs by over $60 mln, allowing operating expenses to fall 3% yr/yr.
- Looking ahead, EA still expects to continue executing its two most important drivers of long-term growth: player engagement and high-quality game production. These themes should buoy FY24 (Mar) performance. EA expects mid-single-digit net bookings growth and low double-digit underlying profitability growth yr/yr in FY24, excluding FX headwinds.
The main takeaway is that numerous headwinds are weighing on EA today. We think EA's decision to delay its Star Wars title is less significant as the lingering weak demand dynamics. Additionally, ending development on two of its mobile titles due partly to the lackluster mobile gaming market is only adding fire to today's sell-off. EA is ending a challenged FY23 on a sour note, which could remain the theme throughout FY24 if the ongoing gaming slowdown taps the brakes further. Finally, EA's report does not carry an uplifting tone leading into TTWO's DecQ report on February 6.
Snap is breaking down again as growth evaporates, setting bar lower for online ad peers (SNAP)
Already reeling from a disastrous 2022 which saw its stock plunge by over 80%, Snap (SNAP) is taking another dark turn after issuing a dismal 4Q22 report that underscored the company's rapidly declining growth.
- In fact, revenue was virtually flat on a yr/yr basis at $1.3 bln, continuing a steady downward trend in growth that began in 2Q21 when revenue surged by 116%.
- Worse yet, the social media company disclosed that revenue has fallen by approximately 7% quarter-to-date with no improvement on the near-term horizon.
- While stopping short of issuing official guidance, SNAP noted that its internal forecast assumes a revenue decline of 2-10% for 1Q23, which would represent its first yr/yr drop in revenue in its history.
SNAP is making a habit of resetting the earnings bar lower for other online advertising stocks.
- Like last quarter, the company's weak results and outlook initially dragged shares of Meta Platforms (META) and Pinterest (PINS) sharply lower ahead of their earnings reports, which are slated for tonight and February 6, respectively. Notably, after a rough open, META shares have bounced back and are now trading about flat on the session.
- Google parent Alphabet (GOOG) is now showing modest losses with its earnings report set for after the close tomorrow. GOOG's dominance in search, its lack of exposure to Apple's (AAPL) iOS changes, and its diversification from its cloud business, provide it with a few key advantages over other digital advertising names.
The troubles that plagued SNAP in Q4 are not new.
- From a macroeconomic standpoint, concerns about slowing growth or a possible recession this year still has marketers feeling skittish about spending.
- If looking at the situation from a "glass half full" perspective, CEO Evan Spiegel did state last night that while advertising demand hasn't improved much, it also hasn't significantly worsened.
- A stabilization in demand would help to stop the bleeding, but SNAP is still contending with market share losses at the hands of TikTok. Incredibly, the short-format video app is expected to report a 150% jump in revenue to $10 bln for 2022, crushing the performances of SNAP, META, and Twitter.
- If those issues weren't enough for SNAP's investors to worry about, the company is also implementing some changes to its direct response (DR) advertising platform in Q1 that will be disruptive for its partners. Specifically, Mr. Spiegel mentioned changes to the app's user interface, the redesign of SNAP's sales channel, and enhancements to third party measurement tools, as key changes to the DR platform that it's implementing.
Good news was hard to come by, but one positive is that DAU growth remained steady at 17% for a total of 375 mln users, indicating that the popularity of its app remains pretty healthy. Additionally, the company's recently launched Snapchat+ subscription product is experiencing solid growth with subscribers increasing to 2.0 mln from 1.5 mln last quarter.
The bottom line, though, is that SNAP is taking hits from multiple sides and that there's no light at the end of the tunnel at this point. The company's cost-cutting actions, including last year's 20% workforce reduction, should keep it afloat from a profitability basis -- SNAP believes there's a path to achieving a breakeven Q1 on an adjusted EBITDA basis -- but it's hard to find any real catalyst for the stock in the near term.
Western Digital did not follow in Seagate's surprise upside last week (WDC)
Any hopes that Western Digital (WDC -4%) would follow its rival Seagate's (STX) lead and signal that its downturn was perhaps turning a corner were dashed last night. Both companies had been issuing misses and guide downs in recent quarters, sometimes by large amounts, as its industry has been in a pretty severe downturn. However, last week, Seagate beat analyst expectations for DecQ and guided MarQ in-line. It also said it's planning to begin ramping production output in MarQ.
- Western Digital, on the other hand, reported a larger than expected loss and guided MarQ EPS and revs well below analyst expectations. The one good metric was reporting upside DecQ revenue. WDC cites a challenging flash price environment and continued cloud inventory digestion. WDC has been in cost-cutting mode, including reducing its cap-ex across both flash and HDD and reducing headcount. It also reduced flash wafer starts by 30% in January. Also, unlike Seagate which has maintained a healthy dividend, WDC suspended its dividend at the start of the pandemic and has yet to turn it back on.
- WDC says that demand for consumer-oriented products has stabilized, consistent with what it said on its October call. In consumer, WDC saw a seasonal uptick in DecQ across both Flash and HDD. In client, channel demand for both SSD and HDD have improved. However, commercial PCs are now being impacted by tighter spending across corporations, which is hurting client SSD shipments. In cloud, WDC saw a decline in nearline shipments as customers were undergoing inventory digestion and ongoing subdued China demand.
- The MarQ outlook is not great either. On the hard drive side, overall demand in cloud has stabilized and WDC expects modest improvement in near line. Stronger improvements are expected in 2HCY23. On the flash side, enterprise SSD product demand is expected to be sharply reduced as certain large cloud customers have entered a digestion period. Also, a reduction in commercial PC demand is expected to impact client SSD shipments in the near term.
- Beside earnings, there was no discussion about possible merger talks with Kioxia, which was reported by Bloomberg last week. All WDC said was its strategic review process is ongoing and it will not comment on market rumors, which is exactly the response we said we expected in our preview yesterday. There was some major non-earnings related news. Apollo Mgmt led the purchase of $900 mln of convertible preferred stock, along with Elliott Mgmt.
Overall, this quarter was a bit of a letdown after STX got investors excited last week. We had been hoping for a strong statement from WDC that the market downturn had hit a trough, but that was not to be. It seems that STX's near term prospects are brighter. WDC seemed to signal it will take longer. On the other hand, we think investors are pleased to see the investment by Apollo and Elliott as a vote of confidence. We will keep WDC on the radar, a deal with Kioxia would make a lot of sense.
Advanced Micro chips away at solid gains after Q4 numbers shine against INTC's dim report (AMD)
Advanced Micro (AMD +7%) is chipping away at solid gains today following decent Q4 results. Heading into its Q4 report, AMD was hurdling a lower bar set after competing chip maker Intel (INTC) registered a host of disappointing Q4 metrics last week, raising a few alarms. However, investors retained much of their optimism surrounding AMD, keeping shares from sinking, which ultimately proved the right call, as the company's Q4 report shined nicely against the dim figures posted by INTC.
- While INTC missed the mark in Q4, falling short of its earnings estimate and delivering revenue toward the low end of its projected range, AMD posted beats on its top and bottom lines in the quarter. Sales growth of 16.0% yr/yr to $5.6 bln was buoyed by AMD's Data Center and Embedded segments, which grew 42% and over 1,800% yr/yr, respectively. Embedded's explosive growth was due to AMD including revenue from its acquisition of Xilinx.
- AMD still contended with similar headwinds as its rivals and peer group. Overall PC demand remained soft, adversely affecting AMD's Client and Gaming segments, which contracted by 51% and 7% yr/yr, respectively. As has already been well-documented, customers are working through elevated inventories instead of ordering new components, constraining growth in these segments.
- However, there were multiple silver linings. During the holiday season, desktop channel sell-through within AMD's Client business saw sequential growth. Furthermore, CEO Lisa Su remarked that 1Q23 should be a bottom in terms of PC demand weakness, expecting growth in 2Q23. This was a firmer statement than that by INTC, which stated it would not guide for the rest of the year, only that 1H23 is likely seeing the bulk of inventory corrections in its Client Computing Group (CCG) business.
- AMD's near-term outlook was also more uplifting than INTC's. Its Q1 sales forecast of $5.0-5.6 bln was within analyst estimates, a stark contrast to INTC, which guided Q1 revs well below consensus. Similarly, AMD targeted Q1 non-GAAP gross margins of around 50%, a 1 pt contraction from its margins, excluding Xilinx, in the year-ago period. Meanwhile, INTC's Q1 gross margin forecast was concerning, expecting a 14 pt decline yr/yr to 39%.
Still, there are a few reasons to take a step back following AMD's earnings report. Its Q1 guidance, albeit better than consensus, still translates to a 10.0% decline yr/yr at the midpoint, AMD's first quarterly decline since 2Q19. Also, a recovery in China, which comprised roughly 25% of AMD's FY21 billings second to the U.S. at 28%, could take longer than anticipated. Management noted that a recovery is "very difficult" to call; INTC expects this region to recover in 2H23.
Nevertheless, AMD's Q4 report and Q1 outlook were better than expected, paving the way for the stock to try to break above previous resistance of around $78.00 and close the day above its 200-day moving average (79.39). The company's results also set a more bullish tone around NVIDIA (NVDA), which reports JanQ earnings on February 22.
Exxon Mobil tops off record-setting year with strong Q4 as it taps into Permian Basin assets (XOM)
Bolstered by high commodity prices, rising demand for energy, and a well-timed strategy to invest in its Permian Basin assets, Exxon Mobil (XOM) surpassed 4Q22 earnings estimates, keeping the stock's upward momentum going.
- Since the beginning of 2022, shares of XOM have surged by nearly 90%, crushing the S&P 500 in the process, which is down by 15% during this same period.
- While investors shunned typical high growth sectors like technology and consumer discretionary as interest rates shot higher, capital poured into energy names like XOM and rival Chevron (CVX). Both of those companies generated record profits in 2022, with XOM seeing its earnings skyrocket by 142% yr/yr to a staggering $55.7 bln.
- In Q4, XOM's Permian Basin assets delivered record production of 560,000 oil-equivalent barrels per day, representing a 30% yr/yr increase in output.
- Although CEO Darren Woods acknowledged that favorable conditions played a significant role in XOM's strong results, he also credited the company's decision to invest in its most profitable assets -- Guyana and the Permian Basin -- when the pandemic led others to move away from fossil fuels.
- That strategy continues to pay dividend as the Upstream segment generated a $2.1 bln increase in earnings on a yr/yr basis.
- A pullback in crude oil and natural gas prices in Q4 led to a 34% qtr/qtr decline in Upstream earnings, but Mr. Woods believes that oil prices will move higher again this year. An economic recovery in China, driven by the easing of COVID-related restrictions, and a relatively tight supply situation are two key factors that should buoy oil prices.
- In turn, XOM intends to keep the oil flowing from its Permian Basin assets again in 2023 and beyond, which also bodes well for its refining business. The company's Energy Products segment churned out a profit of $4.1 bln in Q4, driven by stronger refining margins and increased marketing and trading contributions.
- Looking beyond the main EPS and revenue numbers, cash flow from operations is perhaps the most important metric for XOM since it supports the company's substantial capital allocation strategy. For the quarter, cash flow from operations totaled $76.8 bln.
- It's hard to imagine now, given how robust XOM's business is, but in 4Q20 the company generated cash flow of just $4.8 bln. In 2020, the company also posted its first net loss in over 40 years, amplifying concerns that it will need to significantly cut its dividend. Today, that dividend, which currently yields about 3.6% annually, looks very safe, even as XOM ramps up its share buyback program. On that note, XOM is planning to boost its share buyback program to $50 bln through 2024.
The main takeaway is that XOM is a cash flow and earnings generating machine and there is little reason to believe that its ability to produce strong profits will take a meaningful turn for the worse any time soon. Even if the global economy slows, oil and gas prices will still be supported by lower production and supply as more energy companies move towards renewables.
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