• Exxon Mobil stock is up 40% year to date ahead of the Q3 report.
  • Q3 Earnings and revenue are expected to be above estimates on higher oil prices.
  • Focus will be on cost measures to bolster the bottom line and plans to curb carbon emission.

Exxon Mobil Corporation (NYSE: XOM) is scheduled to deliver its third-quarter results on October 29 before the market opens. The company heads into the earnings session with its sentiments, having improved significantly with a spike in oil prices to three-year highs. Additionally, the stock price has more than doubled over the last 12 months after imploding on oil prices, tanking to record lows at the height of the Covid-19 pandemic.

Chart showing XOM price action

Exxon Mobil stock is up by more than 40% year to date, affirming the renewed investor interest as oil prices continue to edge higher after finding support above the $70 a barrel level. With the stock having rallied to a 52-week high, the Q3 report will be pivotal if the stock is to edge higher and recoup all the losses accrued last year.

The probability is high that the oil giant will deliver better-than-expected results driven by a year-on-year increase in earnings and higher revenues. However, the company also finds itself at crossroads as it looks to take advantage of a spike in oil prices.

In the recent past, pressure has been building up from shareholders and environmental groups for the company to cut its carbon emissions. Such a move is not possible without the company going slow on oil production.

Q3 earnings expectations

Wall Street expects the oil and gas giant to deliver quarterly earnings of $1.55 a share, representing a 96% year-over-year increase. In the second quarter, Exxon Mobil delivered earnings of $4.7 billion, up from a net loss of $1.1 billion delivered the same quarter last year. Consequently, it bounced back to profitability with an EPS of $1.10 compared to a loss of $0.26 delivered the same quarter last year.

Image showing XOM EPS growth rate and estimates

Revenue is expected at $73.3 billion, up 58.7% year-over-year, mostly driven by a spike in oil prices to multi-year highs. In the second quarter, revenue more than doubled, landing at $67.74 billion compared to $32.61 billion delivered the same quarter last year.

What to look out for when Exxon Mobil reports

When Exxon Mobil reports, the focus will be on the impact of a spike in oil prices to three-year highs in recent months. The spike is expected to drive revenue growth which investors believe should allow the company to generate significant free cash flow for distribution through dividends.

While delivering Q2 results, management reiterated plans to spend more on key projects in Guyana, Brazil, and Permian. While full-year spending on the new projects is anticipated to be on the lower end of the $16 billion to 19 billion guidance, it will be interesting to see the kind of impact it had on the bottom line.

Additionally, Exxon Mobil reiterated it was in the process of realizing the benefits of improved cost structure and solid operating performance. Improvement on this front is crucial if the oil and gas giant is to generate attractive returns and strong cash flow to fund its capital programs, reduce debt and pay dividends. The company currently pays a solid annual dividend yield of 5.51%, which could greatly benefit from higher revenue and an increase in free cash flows.

Bottom line

Exxon Mobil has been on an impressive run in response to a spike in oil prices to three-year highs. The stock is up by more than 40% as investors remain confident of it benefiting a great deal given the solid underlying fundamentals.

Consequently, a blowout Q3 report on earnings and revenue can only strengthen investor confidence in the stock, which could result in the stock edging higher. Likewise, a disappointing earnings report amid a favorable macro environment could spook the market and drive the stock lower.