We are going to perform a fundamental stock analysis of the Exxon Mobil Corporation ticker symbol Exxon Mobil is one of the largest integrated oil and gas companies and these integrated energy companies have performed very well in the recent past.
Rising prices of oil and natural gas have seen many super investors investing in the energy sector. Including Warren Buffett, who has been buying energy-based businesses consistently for the past year or two. Including Exxon Mobil’s main competitor Chevron.
Buffett’s argument for investing in energy companies is likely because he believes the price of oil is going to be higher over the long term than it has been in the past. That’s basically why they gave Occidental Petroleum the financing to buy Anadarko before Covid-19. pandemic and it is likely that he has since been investing in testing in Chevron and Occidental.
Very high long-term outlook – oil prices combined with these types of businesses not reinvesting in oil production capacities as heavily as in the past means that these businesses have a lot of free cash flow. Will go to repay their debt load. return capital to shareholders through both the form of debt and additional dividends that they hold.
Exxon Mobil stock price forecast 2022
Stock buybacks in the long run would seem like a very simple concept to Buffett. Exxon Mobil is currently trading at 99.19 per share. Their share price has increased by 62 percent in the last year. He has done very well in three years. Even in March 2020, there has been a huge decline.
Compounded annually over 10 years, his share price is only seven and a half percent. They are compounding at less than one percent a year, going back to before the global financial crisis. The Exxon Mobil share price has only been rising at a rate of approx. Their share price hasn’t even doubled in that time, at four percent annually, although this has paid out a much higher dividend yield for the majority of Exxon Mobil.
Exxon Mobil stock 52-week high low
Exxon Mobil is currently paying a 3.55 dividend yield in addition to the return on its stock price. The SP 500 ETF has nearly twice the dividend yield from Exxon Mobil. That’s about five dollars below its 52-week high. Nearly doubled from their 52-week low and they’re in huge business. They are one of the largest businesses in the world with a market cap of $413 billion. For more background on the business, Exxon Mobil is an integrated oil and gas company that conducts exploration.
It plans to produce 2.3 million barrels of liquids per day and 8.5 billion cubic feet of natural gas at the end of 2021 to produce and refine oil worldwide. The company is the world’s largest refiner with a total global refining capacity of 4.6 million barrels of oil per day and is one of the world’s largest manufacturers of end-to-end commodities and specialty chemicals. Last year Exxon Mobil had about 20 000 net operated wells with proven reserves. The company was established in 1870. It is headquartered in Irvine Texas for our fundamental analysis.
6 standard financial metrics
We are analyzing select 6 taking a checklist approach of six standard financial metrics. So as to get an overall and initial understanding of what Exxon Mobil is based on the fundamentals of their business. This analysis is still a work in progress, it is still evolving. It is also an opportunity for public learning to continue to improve and get better over time.
With that, we begin our analysis with metric number one.
We want their average return on capital to be above 14 percent over the last five years. There are a few reasons for this, the first being that a stock is going to give roughly the same return over the long run as it does over the course of decades.
As it is the underlying business returns and these business returns are captured here by the return on capital. The second is that the average publicly listed business earns about 7% return on capital. By seeking 14% we can build some margin of safety for ourselves overall. The quality of business is about twice as good as the average.
Exxon Mobil’s return on capital was pretty average during the COVID-19 pandemic. Things got worse as the price of oil and natural gas collapsed. They give a negative return on capital in 2020. Since then these commodity prices have gone higher. His return on capital has improved a lot in the last year. He has earned around 11% return on capital. So far in the last 12 months, they are earning around 20% return on capital which is very good.
However, they are a commodity business, and while they are a very large business. There are potentially low-cost productive advantages. Their fixed costs are spread over a greater number of operations. Their return on capital is heavily dependent on the price of oil and natural gas. , So during this time, he has only earned a little less than six percent return on capital. Even though they’re currently earning around 20, it’s still going to be an x on metric number one.
2 Exxon Mobil stock standard financial metrics
To start things off with metric number two here we’re looking at a high level of ‘cash coming into the business’. We want their revenue, net income, and free cash flow to grow over the last five years. Even though we saw this huge decline year on year from 2019 to 2020. where their revenue fell. Too high and they had both negative free cash flow and negative net income over this five-year period. They have actually increased the revenue and they have increased their profits from the business. So both their earnings and their free cash flow have increased.
This is going to be our first check on metric number two for metric number three. Here we’re taking the perspective of an individual shareholder in the business by looking at Exxon Mobil’s profits on a per-share basis. In particular, we want to see e. Growth in earnings per share over the last five years This is different from the previous metric where we have seen their earnings growth over the last five years
stock standard financial metrics
We’ve seen growth in earnings per share. One small thing to note here is that their earnings per share grew only slightly faster than their earnings during this time period. And that’s because the company bought back about two percent of their outstanding shares and not a whole lot of buybacks which would be a good sign to watch for long-term shareholders of the business.
If those buybacks happened when Exxon Mobil was trading below its intrinsic value because that’s when you buy a share of stock. What you are actually buying is a partial ownership percentage in that business and when a business buys back the shares and subtracts the number of shares that they have outstanding. So increasing your ownership percentage of the business is ultimately going to increase the percentage of the business profits that you are entitled to.
For Exxon Mobil, we have seen that both have increased profits. If you’re a long-term shareholder in the business those profit percentages would have gone up a bit. This is a good sign that they weren’t confusing shareholders at large, despite their difficulties.
This is another check on metric number three in 2020.
Metric number four is going to be very similar here we’re looking for five-year free cash flow per share. Their free cash flow per share has more than doubled over this time period and the profitability of the business has rebounded strongly since 2020. They’re putting up great numbers for shareholders in 2021 and over the last 12 months. so this is another check on metric number four here.
long-term and short-term Investments in Exxon Mobil
So far through the four metrics we have three checks and only one X next for metric number five. We want their net debt which is short and long term liabilities. Minus cash and short-term investments should be less than the amount of free cash flow generated by Exxon. Mobil has produced over the past five years.
This will help us evaluate how to take the business forward. If they are using a lot of debt in their business. So Exxon Mobil had a really high debt load in 2020. They show that there was an excess of about $19 billion in net terms.
debt between 2019 and 2020 though, as their free cash flow increased. He has aggressively paid down this loan late last year. They had roughly $46 billion in net debt, down from just $28 billion in net debt currently, and generated nearly $70 billion in free cash flow over this five-year time frame.
The business is in healthy shape to be able to support this debt load. If Exxon Mobil generated $49 billion in free cash flow over the past 12 months, that’s a ton in comparison. Especially for these pre-pandemic years. Exxon Mobil looks like it’s in a very strong cash flow generative state. This is another check on metric number five and we are not seeing clear indications that the trade will become highly leveraged.
Finally the big metric mall metric number six we want is their average five year free cash flow to their total enterprise value. That should give us a yield above five percent. If so, then it would give us a reason to be potentially interested in the business. This would give us a slight risk premium over the risk-free rate of the 10-year treasury.
total Enterprise Value Exxon Mobil stock
We’re using total enterprise value here instead of Exxon Mobil’s market cap because total enterprise value is going to include both its market cap and its net debt position. Being valued as a private business, they currently have a total enterprise value of $448 billion. We’ve learned that they generate $70 billion of free cash flow over the past five years. Which means they are generating about $14 billion in an average year.
When we divide their average free cash flow of $14 billion by their total enterprise value of $448 billion. That’s only going to give us an average free cash flow enterprise value yield of 3.1 percent. So it’s going to be down both the 10-year Treasury rate and the five percent mark that we were looking for.
This is going to be an X here on metric number six. It’s worth noting though that they generated $49 billion in free cash flow over the past 12 months to get a current free cash flow to enterprise value yield. When we take the $49 billion in free cash flow they generated over the last 12 months. Divide their total enterprise value by $448 billion. We achieve a current free cash flow to enterprise value yield of less than 11. That would be well above the mark we were looking for and is a very strong cash flow yield for any business across the board.
Compared to their current free cash flow, their average free cash flow is on either side of this five percent mark. As their recent business results have been much better than they have historically been. If the price of oil and natural gas remains high. That’s Warren Buffett’s take on investment valuation in integrated energy companies. So Exxon Mobil could be particularly interesting.
Exxon Mobil’s dividend
Here we’re looking at the dividend profile of Exxon Mobil. Exxon Mobil is a dividend aristocrat that has steadily increased its dividend payout for each of the past 39 years. Plus they currently have a three-and-a-half percent dividend yield. It’s really easy to make mistakes by blindly following dividend yield or dividend track record. To be supported by their cash flows in each of these five years. It’s a mixed bag here, where they were able to support their dividend quite a bit in 2017 and 2018.
Their cash flow didn’t support their dividend in 2019. Especially when their cash flow turned negative in 2020 but the company has rebounded. They’re now generating considerable cash flow relative to the dividend that they’re paying. It looks like their dividend payouts are currently in healthy shape. While it doesn’t take great capital allocation to see them grow their dividend consistently enough to maintain their track record even in these two declining years in 2019 and 2020 from a shareholders perspective. Exxon Mobil is a commodities business.
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