How Do Hedge Funds View Two Energy Stocks Whose Credit Outlook was Downgraded by S&P?

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Standard & Poor’s has downgraded its outlook on Exxon Mobil Corporation (NYSE:XOM)’s credit rating, citing perceived weakness in the next two years. Similarly, Chevron Corporation (NYSE:CVX) credit rating outlook was also downgraded by the credit ratings and indexes institution. Hedge funds had a similar outlook on Exxon Mobil in the second quarter, as Insider Monkey’s data reveal.

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In an announcement on Friday night, Standard & Poor’s revealed that while Exxon Mobil Corporation (NYSE:XOM)’s long-term corporate credit rating is still the coveted “AAA” and that its short-term commercial paper ratings is unchanged at “A-1+”, its outlook on the ratings have changed from “Stable” to “Negative”. The firm downgraded its outlook because they expect Exxon Mobil’s credit measures over the next one to two years will be weak. S&P cited lower internally-generated cash flow along with substantial capital spending and dividends as the culprit. Furthermore, it said that low oil and natural gas prices are expected to exacerbate the situation. Exxon Mobil has “substantially more debt” than the last time commodity prices dipped in 2009, it added. Things are expected to improve in 2017, however, as credit measures are expected to climb to acceptable levels in the year, the ratings firm said.

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In May, S&P affirmed Exxon Mobil’s “AAA” credit rating and “Stable” outlook, but downgraded the firm’s liquidity rating from “Strong” to “Adequate”. This meant that though Exxon Mobil remained with a lot of cash, S&P expected lower prices to weigh on the firm’s margins and cash reserves. The ratings firm said then that the $59.3 billion in capital spending planned for this year will likely eat into Exxon Mobil’s cash. Other factors such as current debt maturities, upcoming dividends and stock buybacks contributed to the downgrade in May.

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