Exxon Mobil (XOM): Q2 2026 results, my verdict

2026-07-31 · By Lubin Danilo, founder of Lubin Investment

XOM: see the full analysis on Lubin Investment

Exxon Mobil reported on July 31, 2026 a $14.5 billion profit, above expectations, driven by record production in the Permian Basin. But my quality filter validates only half my criteria, and my model shows a stock significantly overvalued relative to its own cash trajectory. Here is why I am not rushing in.

What Exxon Mobil just reported this morning

Exxon Mobil reported its second-quarter 2026 results this Friday, July 31, before the US markets opened. Net income came in at $14.5 billion, or $3.48 per share, with adjusted earnings of $14.7 billion ($3.52 per share): a 12.6% positive surprise versus analyst expectations, with revenue also 4.8% above consensus. Operating cash flow reached $23.6 billion for the quarter, for a free cash flow (the cash truly left over once all capital spending is paid) of $17.2 billion.

The engine behind this quarter is the Permian Basin (Texas and New Mexico), where Exxon hit a record production level. It is the cheapest shale oil basin to operate in the United States: unlike offshore drilling, which takes years and billions of dollars before the first barrel, a Permian well produces within months at a fraction of the cost, giving Exxon unique room to stay profitable even when oil prices fall. The company returned $9.4 billion to shareholders this quarter, including $4.3 billion in dividends and $5.1 billion in buybacks.

Why my quality filter validates only 5 out of 10 criteria

Exxon remains a profitable company (7.8% net margin) with manageable debt (repayable in 2.09 years of free cash flow, well under my 3-year alert threshold). But half of my criteria fail, and this is not a one-quarter fluke: it is a five-year trend. Revenue has declined 1.7% a year on average over that period, and free cash flow per share has fallen 19.3% a year. My cash return on capital employed criterion (Cash ROCE, what each dollar reinvested in the business earns back) comes in at just 5.1%, far below my 15% threshold.

The explanation fits in one word: oil prices. Exxon does not sell a differentiated product whose price it sets; it sells a barrel of crude at whatever the world price happens to be that day. Its revenue went from $181.5 billion in 2020 to a peak of $413.7 billion in 2022, when the war in Ukraine sent energy prices soaring, before falling back to $332.2 billion in 2025 as prices normalized. Free cash flow follows the exact same curve, even more sharply: from $58.4 billion at the 2022 peak to $23.6 billion in 2025, a decline of more than half. The good quarter I just described is therefore good one-off news against a backdrop of structural decline in cash generated since the 2022 peak, not a confirmed trend reversal.

The price: expensive today, and expensive versus its own past

Exxon currently trades at 34.4 times its annual free cash flow (P/FCF). To judge whether that is expensive, I never settle for the raw number: I compare it to the stock's own history. Here, this multiple sits at the 81st percentile of Exxon's last five years, meaning it is close to the top of its usual valuation range. Compared to its sector (integrated oil and gas), it is even starker: Exxon ranks at the 91st percentile, well above the sector's median multiple (15.6 times) and even above its closest direct peer, Chevron, which trades at 27 times free cash flow.

My reasonable-buy-price model, which projects the five-year cash-per-share trajectory rather than relying on today's multiple alone, puts Exxon's entry point at roughly $11.78, against a current price of $155.44. That is a 92.4% premium. A figure that looks extreme, but has a simple explanation: when free cash flow per share declines 19.3% a year, projecting that same trajectory mechanically produces a cautious buy price far below the current one. The quarter that just landed, good as it is, is not enough on its own to reverse that five-year trajectory in my model.

The real debate: does the dividend offset the cash decline?

Exxon is among the rare US companies to have raised its dividend every year for more than four decades, a "dividend king" status that reassures a historically loyal shareholder base. The current yield is 2.6%, on a payout ratio of 68% of earnings and growth of 3.2% a year over the last five years. The catch is that this 68% payout ratio is calculated on a free cash flow that has more than halved since 2022: the safety cushion is tightening, even though the company has so far shown no sign of wanting to cut the dividend.

Another detail worth noting: over five years, Exxon's share count has barely moved (+0.13% a year on average), despite massive, well-publicized buybacks like this quarter's $5.1 billion. This means new share issuance, tied notably to employee stock compensation and past acquisitions, absorbs nearly the entire effect of the buybacks. The buyback program therefore does not really shrink the number of shares each existing holder owns, contrary to what the headline dollar figure might suggest.

How I settle it

A quarter that beats consensus does not make an investment thesis on its own, especially in an industry as cyclical as integrated oil. Exxon remains a solid company on the balance-sheet front, with a top-tier industrial asset in the Permian, but my quality filter (5 out of 10 criteria) and my valuation model (92.4% premium) tell the same story: the current price assumes a durable rebound in margins and cash generation that the last five years of trajectory do not yet confirm. I would rather wait for an entry point consistent with the numbers than with the press release headline, tracking Exxon Mobil's page quarter after quarter, exactly the discipline I built my stock analysis tool to automate.

Q2 2026 results: $14.5 billion profit (+12.6% vs expectations), revenue +4.8% vs expectations, driven by record Permian Basin production.
My quality filter validates only 5 out of 10 criteria: solid net margin (7.8%) but free cash flow per share down 19.3% a year over five years.
Revenue and free cash flow have more than halved since their 2022 peak (war in Ukraine), a normalization after the energy price shock.
P/FCF of 34.4x: at the 81st percentile of its own history AND the 91st percentile of its sector, more expensive than direct peer Chevron (27x).
My reasonable-buy-price model puts the entry point at $11.78 against a $155.44 price, a 92.4% premium: I am not buying at this price.

FAQ

Why is Exxon Mobil's Cash ROCE so low?

Cash ROCE measures how much cash each dollar reinvested in the business earns back. For Exxon it comes in at 5.1% because oil and gas extraction requires massive capital spending (drilling, refineries, pipelines) for a return that mostly depends on the price of oil, a variable Exxon does not control.

Why has Exxon's revenue fallen so much since 2022?

2022 was an exceptional peak driven by the war in Ukraine, which sent global energy prices soaring. Since then, oil and gas prices have normalized, which mechanically explains the decline in revenue and free cash flow, independent of Exxon's operational performance.

Is Exxon Mobil's dividend at risk?

Not immediately: the 68% payout ratio remains sustainable, and Exxon has raised its dividend every year for over forty years. But that ratio is calculated on a free cash flow that has more than halved since 2022, a trend worth watching if it continues.

Should you buy Exxon Mobil stock after these results?

My quality filter validates only 5 out of 10 criteria, and my model shows a 92.4% premium versus my reasonable buy price. A good quarter is not enough to erase a cash trajectory declining since 2022. This remains analysis, not personalized investment advice: do your own research.

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).