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Big Oil Advances as Dow Declines

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down slightly, but stronger-than-expected earnings from big oil have pulled energy stocks higher. The Dow will jostle around on initial jobless claims -- which were down 10,000 to 340,000 last week -- or the Federal Reserve's latest move, but at the end of the day companies are valued on earnings. For big oil, all investors are hoping for is a little better news than expected in a challenging environment. That's exactly what they got today. 

ExxonMobil (NYSE: XOM  ) is one of the Dow's leaders, gaining 1.8% today. The driver was third-quarter net income of $7.87 billion, or $1.79 per share, which was $0.02 ahead of EPS estimates. Revenue was down 2.4%, and net income dropped 21.6%, but the short-term reaction is simply to beating guidance. 

Competitor ConocoPhillips (NYSE: COP  ) saw its shares rise 1.1% after reporting a 5% increase in revenue to $15.5 billion and a 38% increase in earnings to $2.48 billion, or $2 per share. Adjusting for asset sales, net income would have been up 5% in the quarter to $1.46 per share, a penny ahead of estimates.  

The big difference between the two was ExxonMobil's exposure to refining. That segment saw earnings drop 81% from a year ago to $592 million. That accounted for almost all of the drop in income at the oil giant.

We can expect similar results from Dow component Chevron (NYSE: CVX  ) , which reports earnings before the market opens tomorrow.

Beating estimates is well and good, and the market will react positively to it in the short term. But in the long term, ExxonMobil, ConocoPhillips, and Chevron are struggling with trends that have sent earnings lower.

XOM Net Income (TTM) Chart

XOM Net Income (TTM) data by YCharts.

Whether it's lower refining earnings for ExxonMobil and Chevron, or more expensive exploration for ConocoPhillips, big oil is under pressure. Watch for long-term trends as well, because that's what will drive company value and stock prices.

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
COP $39.94 Down -1.08 -2.63%
ConocoPhillips CAPS Rating: ****
CVX $99.22 Down -0.76 -0.76%
Chevron CAPS Rating: ****
XOM $83.45 Down -0.09 -0.11%
ExxonMobil CAPS Rating: ****