Where Next for ExxonMobil (XOM) Shares?

When you think of Big Oil, one of the first companies that comes to mind is ExxonMobil (NYSE: XOM).� The Dow Jones Industrial Average component is the biggest non-state-owned oil company in the world, and it�s gained a reputation as one of those safe and steady stocks that every prudent investor should own.� Unfortunately, XOM hasn�t lived up to that stalwart reputation.�

Over the past five years, the stock is actually down 5.43%.� So far in 2010, the oil giant�s shares have declined �9.88% (as of Sept. 22).� That�s not exactly what you�d call stalwart performance.� Moreover, in June XOM shares hit multiyear lows, sinking to their lowest point since December 2005.� Yet despite XOM�s woes, in the past three months the stock has come back off of the canvas.� Shares are up 2.30% over that time period, as investors once again start to nibble on the oil giant.� Now the question is: Which way will XOM shares go next?� Here are the pros and cons of this big oil stock.

Pros

Refined mega-profits.� In July, ExxonMobil posted a second-quarter profit of $7.56 billion, or $1.60 a share. That was a jump of over 90% from the $3.95 billion, or 81 cents per share, the company earned in the same quarter a year earlier.� The earnings easily bested the consensus forecast for earnings of $1.46 per share.� The Q2 beat came largely as a result of a strong rebound in the company�s refining business, a segment that was beat down hard by declining demand resulting from the worst of the recession.�

A changing model. Although ExxonMobil has seen a rise in its refining business, the company is not relying on this rather fickle segment for its future sustenance.� In fact, the company now is selling off refining and other non-core assets to focus on exploration and production. According to analysts from JPMorgan, many big-cap energy companies like ExxonMobil are selling off fuel stations, pipelines and refineries, and boosting spending on oil and gas production in unconventional oil and gas reserves such as rock formations and oil sands.� This strategic shift by ExxonMobil could turn out to be a big net positive for the company if oil prices climb.

Solid dividend and yield. Even though the share price performance of XOM has languished in recent years, the company continues to payout a healthy dividend.� ExxonMobil shareholders receive an annual dividend payout of $1.76 per share, which at current price levels represents an attractive dividend yield of 2.90%.

Cons

The economics of oil. Compared to just a couple of years ago, oil prices are trading way down.� At about $73.50 per barrel, the price of crude has been relatively weak.� The reasons for the current economics in oil are actually fairly simple.� First you have anemic global economic growth, which essentially means lowered demand for oil.� Then there�s the absence of any serious inflation pushing commodity prices higher. Finally, oil inventories are currently well above historical averages.� Lower oil prices don�t bode well for Big Oil�s bottom line, and the economics of oil could keep a cap on profits — and the value of XOM shares.

Technical resistance.� Although there has been some nice movement off of the recent lows, XOM shares still trade well below their long-term, 200-day moving average. Plus, there is quite a bit of technical resistance around the $64-$66 level, and that resistance could cause any budding rise in XOM shares to stall. �

A bevy of downgrades. Despite the fact that XOM shares have come back off of their 2010 lows, the analyst community seems to have turned their back on the oil giant.� Last week ExxonMobil shares received downgrades from Deutsche Bank and RBC Capital.� Deutsche Bank (DB) lowered its rating on XOM to hold from buy and cut its price target from $70 to $65. RBC Capital lowered its rating on XOM to sector perform from outperform while cutting its price target from $76 to $70. In late June, Goldman Sachs lowered its earnings estimates for XOM through 2012, saying that ExxonMobil�s acquisition of XTO Energy will be dilutive to earnings. Goldman currently rates the stock as neutral with a $65 price target.� This analyst coverage is anything but glowing, and it shows that Wall Street remains unimpressed by XOM�s future prospects.

Verdict

The metrics in the oil patch, the technical resistance XOM shares face and the uninspiring opinion of the analyst who cover the stock, I think the cons win the argument on the future of ExxonMobil.� If you�re an investor who cares primarily with dividends, and you don�t plan to sell the stock anytime soon, then maybe XOM shares are a good fit for your portfolio.� However, if you�re looking to see any significant upside in the shares, there are scores of better candidates than this oil behemoth.

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