Energy Investors: Watch Exxon Mobil This Week | ETF Trends

Oil producers and energy sector-related exchange traded funds have been picking up steam as investors look beyond the coronavirus pandemic to a broad economic recover. Next week, Exxon Mobil (NYSE: XOM) could shed light on how the industry faring, and some analysts are readying for a bullish outlook.

Year-to-date, the Energy Select Sector SPDR (NYSEArca: XLE) has increased 30.1% and the iShares U.S. Energy ETF (NYSEArca: IYE) has advanced 29.4%.

On Wednesday, Exxon Mobil will provide investors with an update on its business, and some analysts see the potential for more gains, Barron’s reports.

“Exxon analyst day event on March 3 is viewed as a catalyst rich event,” Credit Suisse analyst Manav Gupta said in a research note on Friday. “While we do not expect a tectonic shift, Exxon could make multiple tweaks that would be viewed positively.”

Exxon previously went into the pandemic with a plan to raise production at a time when other oil companies were scaling back. The company has now changed its direction in recent weeks, cutting its operating budget and projections for capital spending. Consequently, with the rebound in oil prices and the cost cuts in place, Exxon could cover dividends out of its cash flow for the first time in two years.

While Exxon plans to spend $20 to $25 billion on capital expenses through 2025, “bulls are hopeful the company could be persuaded to lower capex to $18-$20 billion,” Gupta said. “This would provide for greater dividend safety as well as faster pace of debt reduction, driving re-rating and dividend yield normalization (5.5% versus current 6.2%).”

XOM makes up 24.4% of XLE’s underlying portfolio and 23.4% of IYE.

Crude oil output in the U.S. has declined since the coronavirus pandemic put pressure on oil demand. More recently, output in the U.S. dipped by 58,000 barrels per day to 11.063 million barrels per day in December, Reuters reports. The pullback may be due to onshore oil production cutbacks in Texas and North Dakota, the top oil-producing states, which outpaced the slight rise in offshore output in the Gulf of Mexico.

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