Stock Market

ExxonMobil Stock Forecast 2025: Here’s My Take on XOM

When forecasting a stock as correlated to oil prices as ExxonMobil (NYSE:XOM), it’s critical to consider where crude oil prices could be headed over the next few years. In my view, this presents a challenge for providing a precise price target for XOM stock by 2025.

On the one hand, oil demand remains quite strong, propped up by the economic reopening from the pandemic, and supply disruptions from catalysts like the Russia-Ukraine war. Additionally, OPEC+ production cuts are also tightening supply. This suggests oil prices may stay elevated for the near- to medium-term.

However, strategic petroleum reserves are being depleted worldwide after the huge drawdowns of 2022. Furthermore, countries like India and China continue re-exporting discounted Russian oil in refined form, limiting supply shortfalls. This dynamic appears likely to persist, acting as a release valve on oil prices for now.

So, Are Oil Prices Going Up or Down?

In terms of potential downside drivers for oil prices, the potential for an economic slump or recession looms large. Any sort of material slowdown in global activity would invariably drag down oil demand and prices. The Fed’s aggressive rate hikes aim to slow inflation, but risk overshooting into a downturn. If that happens, oil prices could plunge back below $60 a barrel.

Personally, I don’t foresee oil prices sustaining above $100 per barrel through 2025. While periodic spikes are likely, mean reversion suggests prices settle back around $60-$80 once markets rebalance. Therefore, upside from current levels looks limited.

What Does This Mean for XOM Stock?

In my view, muted oil prices signal a similarly limited upside for XOM stock. This is a company highly leveraged to the price of crude. Exxon’s earnings directly correlate with oil’s ebbs and flows. Thus, should oil slip back towards $60 per barrel, Exxon’s annual earnings per share would likely fall below $6, based on historical trends. That implies considerable downside risk, with the stock currently trading around 11-times forward earnings with 2023 earnings per share forecasted to be $9.40.

Of course, Exxon’s low-carbon investments and new Gulf Coast refining capacity should provide an earnings buffer. But ultimately, crude prices remain the key variable determining profits. Exxon simply lacks enough countercyclical elements to fully insulate its net income if oil prices slump. This dynamic suggests caution regarding Exxon’s upside potential through 2025, in my view.

Can XOM Stock Deliver More Upside?

Even $100 oil might only push the company’s earnings per share to around $13 by 2025. Applying a forward price-earnings multiple between 10-times and 14-times implies XOM stock trades between $130-$180 in 3 years. That’s hardly terrible, but it doesn’t seem attractive enough to compensate for the downside risks, should oil correct lower. Conservative investors would likely fare better elsewhere.

Admittedly, I could be wrong. If oil surprises to the upside, XOM stock would likely follow. But market trends point toward normalization, not runaway oil prices. It’s rational to expect mean reversion.

Personally, I don’t anticipate outsized gains from XOM stock. The company lacks a compelling long-term growth narrative amidst the energy transition. Its dividend is what sweetens the deal enough not to make this an outright “sell.”

Of course, Exxon is gradually expanding into lower carbon opportunities like carbon capture, hydrogen, and biofuels. But these currently represent a tiny portion of Exxon’s profits. Oil and gas still dominate in this regard, leaving Exxon exposed to commodity whims.

In summary, investors buying XOM stock today must embrace significant commodity price volatility. While the stock’s dividend should provide ballast, share price gyrations could persist for years. My 2025 forecast suggests muted returns between $85-$130, with risks tilted to the donwside.

Given the uncertainty, I rate XOM no better than a “hold” around $100 per share. The dividend is enticing, but offers scant protection from the challenges the energy sector provides. Meanwhile, ESG pressures and the energy transition present lingering headwinds investors need to pay attention to.

The Bottom Line

With XOM stock trading at the upper end of its historic valuation range, I believe the stock already discounts potential upside. Consider booking profits if oil rallies further. Additionally, over the longer-term, Exxon seems unlikely to deliver market-beating returns.

Of course, forecasting oil prices years out is far from an exact science. Black swan events could send crude soaring or plunging unexpectedly. So, weigh your risk tolerance accordingly before investing in this high-beta name. But based on current trends, a “hold” rating for XOM stock seems to be warranted.

On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.