‘Buy the Dip,' Says Analyst Following Exxon Mobil's (XOM) Profit Warning

Business Insider

15-07-2025

Exxon Mobil (XOM) is thinking of ways to save money amid a weakening commodity price environment. The energy giant issued a 'profit warning' on July 8, 2025, ahead of its second-quarter 2025 earnings report. Specifically, Exxon signaled that changes in liquid prices, including crude, condensate, and natural gas liquids, could reduce earnings by $800 million to $1.2 billion. Concurrently, fluctuations in natural gas prices are expected to reduce earnings by an additional $300 million to $700 million.
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All in all, the oiler expects to haul in ~$2 billion less than expected when it reports its Q2 earnings on August 1st. Despite the setback, XOM stock has pushed ~4% higher since last week's profit warning.
Of course, much of this information—like gas price trends—was already public, so investors were largely unfazed, and the market reaction to Exxon's warning was more muted than expected.
Looking ahead, while Exxon's heavy reliance on its Upstream segment makes it sensitive to energy price swings, its solid financial position, attractive valuation, and robust dividend yield support a case for cautious Bullish optimism, even in the face of broader macroeconomic challenges.
Commodity Market Headwinds Provide Entry Point
Taking a step back, Exxon's total earnings in its first quarter of 2025 were $7.7 billion. Exxon is comfortably profitable, generating profit margins near or exceeding 10% in the past three years.
Exxon's warning also highlights a broader shift in global commodity markets. Since reaching highs near $120 per barrel in 2022, Brent crude has gradually declined to around $70. And the trend may continue—the U.S. Energy Information Administration (EIA) forecasts Brent prices to fall further to $66 per barrel by 2026. This isn't just a short-term concern for Exxon; managing and mitigating the impact of prolonged price volatility will be critical to its long-term stability and performance.
Strategic Response Leads to Cost-Cutting and Diversification
In this vein, the company is pursuing cost-saving measures and pursuing growth in downstream and chemical operations.
While the average person makes budget cuts when gas prices are high, energy companies like Exxon do the same when they are low. Critically, Exxon has been making cost-saving efforts for years, saving $12.7 billion since 2019 with a target of $18 billion by 2030. Exxon aims to reduce its break-even point to $35 per barrel by 2027 and $30 per barrel by 2030. So, should prices continue to fall, this ensures Exxon remains comfortably profitable.
Exxon is also diversifying its earnings. For instance, Exxon's China chemical complex produces 1.7 million tons of polyethylene annually. So, this helps insulate its earnings from price fluctuations in energy.
Decoding XOM's Growth, Resilience, and Dividend Yield
Critically, Exxon's balance sheet affords it some flexibility during periods of volatility. Its debt-to-assets ratio is just 40%. Moreover, Exxon maintains a cash balance of $17 billion as of March 2025, according to TipRanks data.
Looking at valuation, Exxon Mobil trades at a Price-to-Earnings (P/E) ratio of 15.2—about a 15% premium compared to its Energy sector peers.
That premium may be warranted, given Exxon's stronger growth performance. Its year-over-year revenue increased by 2.21%, outpacing Chevron's (CVX) 1.19% and BP's (BP) -7.79%, suggesting greater resilience in its core business. On top of that, Exxon offers a solid dividend yield of 3.45%, adding to its appeal for income-focused investors.
Is Exxon Mobil a Buy, Sell, or Hold?
On Wall Street, XOM sports a Moderate Buy consensus rating based on ten Buy, five Hold, and zero Sell ratings in the past three months. XOM's average strock price target of $124.80 implies an upside potential of ~8% over the next twelve months.
Last week, analyst Jason Gabelman from TD Cowen assigned XOM a Buy rating with a price target of $128, noting that, 'The company's upstream operations have exceeded expectations, showing better-than-forecast results due to higher liquid realizations and less impactful maintenance activities.'
On the other side of the aisle, Mizuho analyst Nitin Kumar isn't as optimistic as others on Wall Street after issuing a Hold rating and setting a $124.00 price target on XOM. He believes that, 'although commodity prices were a headwind to earnings in the Upstream segment, we expect supporting pricing in Energy Products and Chemicals/Specialty Products to largely offset this weakness.'
Exxon Mobil Offers Stability in a Volatile Energy Market
Exxon Mobil is strategically positioned to weather energy price volatility. The muted reaction to its recent profit warning suggests the market had already priced in some downside risk. The company remains prepared for further declines in natural gas prices and continues to diversify through downstream and chemical initiatives. While Exxon is still heavily exposed to commodity fluctuations, its stock has remained remarkably stable, with a low beta of just 0.31. Investors also benefit from a dividend that has grown for 44 consecutive years—offering a reliable income stream.
Looking ahead, investors should closely monitor global supply-demand trends and geopolitical risks, as these could still weigh on performance. That said, Exxon's long-term focus on structural efficiency, cost control, and shareholder returns—particularly through consistent dividend growth—positions it well for value creation over time.