Exxon Mobil Corporation (XOM) explores for and produces crude oil and natural gas in the United States and internationally. The company is also involved in the manufacture, trade, transport, and sale of crude oil, natural gas, petroleum products, petrochemicals, and other specialty products; and manufactures and sells petrochemicals, including olefins, polyolefins, aromatics, and various other petrochemicals.
5 Key Points:
- Good dividend yield, but not safe
- We can’t see any positive future plans
- Small overall return on my money
- Significant insider selling over the past months
Current Position & Past Performance
To understand the chart of ExxonMobil, I have to explain a few things about the company and how it functions. It focuses primarily on the upstream and downstream markets. The upstream market is when oil and gas get extracted from the ground, downstream when they refine it and they sell it at gas stations and things like that. ExxonMobil was really good in the upstream market.
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Of course, oil prices drive the company's stock price. One of the first things that comes to my mind when I look at the chart is that XOM is a dividend stock.
ExxonMobil has had a total return of 254% over the last 20 years. Although the current price is right now under the orange line, which represents the margin of the safety line, I’m concerned about the recent price gains that happened over the last few months. Oil prices have risen substantially and I feel it’s just a matter of time before some event or new regulation will pull the price down again. Since COVID, the chart is very volatile (more on that in the news sector).
As Benjamin Graham teaches in his book, the P/E ratio for a company that has only a modest growth potential should not have a P/E higher than 25. XOM is great from this point of view as the current P/E is 11.6.
Taking another look at the past performance. Comparing the stock performance with the S&P 500, XOM has trailed the index by roughly 200% in total over the past 20 years.
Exxon pays a juicy 4.55% dividend yield right now. They have paid a dividend (although not necessarily grown it) for 40 consecutive years. The payout ratio has been volatile lately. Since 2013, it has been above 75%, which is my borderline for a good payout ratio. When it stays under 75%, it says to me that the company is capable of paying out dividends safely and I can trust them as a long-term investment.
Share buybacks can be a silent killer. If a company buys back shares and your position grows, you will have a bigger slice of the cake. If they are issuing shares, your proportion of the company will be smaller. Unfortunately, XOM has been issuing shares every single year.
The long-term debt to capital ratio isn’t a thing to worry about. It is only 20.1%, which is considered very good. XOM's debt is well covered by operating cash flow. The debt to equity ratio has increased from 23.9% to 33.8% over the past 5 years, but is still manageable.
News About ExxonMobil
- Experts say that companies like ExxonMobil need to think ahead, as legislators around the world call for change. Decisions made today could affect wells that will pump many years later.
- Experts say ExxonMobil will pump the biggest amount of oil in the next 3 years. It comes with a lot of risks. Assets like untapped fossil fuel reserves could suddenly become liabilities. One word that can describe the future of the oil and gas sectors is volatility. There will be more and more restrictive policies to limit the burning of fossil fuels and emissions.
- In the past three months, significant shares were sold by 5 individuals and 1 in the company itself. Altogether, this consists of over $100m.
Forecast & Future Growth
Based on analyst estimates, the forecasted future earnings growth rate is 12%. I want to quickly mention the financials. Except for 2019 and 2020, revenue was growing every year.
Enterprise Value & Intrinsic Value
P/E ratio tends to be a bit too volatile, so I like to look at the enterprise value, the intrinsic value and the DCF model.
ExxonMobil market cap: $328b
ExxonMobil enterprise value: $380b
I took numbers from Google Finance, Yahoo Finance and Macrotrends to come up with these results. If I compare them with the current market cap and the enterprise value, both of the spreadsheets show that the current stock price is slightly undervalued.
I use the most widely accepted method to calculate the fair value of a company, which is the discounted cash flow (DCF) model. It is based on the premise that the fair value of a company is the total value of its future free cash flows discounted back to today's prices. I use analysts' estimates of cash flows and assume the company grows at a stable rate into perpetuity.
(Total Equity Value = Present value of next 10 years cash flows + Terminal Value = $154,166 + $186,970 = $341,136
Equity Value per Share (USD) = Total Value / Shares Outstanding = $341,136 / 4,239 = $80.48)
Undervalued by 3.9%. The current fair value is $80.48.
Risks & Overall Takeaway
I have a neutral view on ExxonMobil.
The bearish outlook for Exxon is dependent on where oil goes from here. If oil should continue to rise, it is likely to drive Exxon's revenue and earnings estimates and the stock higher. Given geopolitical tensions, oil prices may continue to surge. However, given the massive surge in oil prices, the stock, and technical trends, current prices may be at a place for Exxon to see a pullback, even if only over the short-term. Everything tells me that it isn’t a buy in my opinion.