Exxon Mobil Stock Analysis

STOCK ANALYSIS REPORT Exxon Mobil kitty (XOM) August 15th , 2011 pic manufacturing Oil and Gas Operations Sector Energy Recommendation apportion charge $74. 29 (as ofAugust 15th 2011, 400pm ET) Intrinsic Value $52. 10 or 42. 6% everywhere honord Fundamentals Grade A Investment Style Large Cap Blend CORPORATE training pic Location 5959 Las Colinas Boulevard Irving, TX 75039 Phone 972-4441000 Fax 972-4441348 Web Site http//www. exxonmobil. com/ Employees 83,000 Exchange NYSE BUSINESS drumheadExxon Mobil Corporation (Exxon Mobil) through its divisions and affiliates is engaged in exploration for, and outturn of, crude inunct and natural gas, industriousness of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is the bear-sizedst integ pass judgmentd oil company, with operations in over 200 countries. This globally diversified enterprise produces superior income tax returns in its business segments when compared to o pposite major oil and gas companies. Exxon has a strong balance sheet with a cash define of approximately $13B and 0. 7 Debt-to equity. Exxon has the liquidity and credit to invest in lofty return projects around the world. Prices for oil and gas are evaluate to rise in the foreseeable upcoming. Emerging trade growth and change magnitude need for energy will place upward pressure on termss. Exxon will benefit as the worlds largest oil and gas company (by reserves, excluding national oil companies). The average industry return is 27%, which is greater than that of S&P500 (21%). Exxons all-stock purchase of XTO Energy is dilutive to share holders and not expected to gain EPS in 2011 or 2012. Exxons size and breadth of operations make it difficult to find investments large enough to produce market beating growth. We expect Exxons growth to slightly lag the boilersuit economy, especially smaller exploration and production companies that have better investment opportunities r elative to their size. Exxons softness to organically replace reserves means that it must acquire oil and gas assets to supply its operations with replacements for the reserves it consumes. Acquired assets will likely come at a gameer price and produce a blueer return. Production from Exxons upstream segment (exploration and production of oil and gas) has been declining (down 30% since 2006). While the erudition of XTO will replace some of this lost production, it is expected that the company will continue to experience declining production from its existing fields. KEY STATISTICS Market Cap (intraday)5 360. 57B Enterprise Value (Aug 17, 2011)3 363. 1B Trailing P/E (ttm, intraday) 9. 78 Forward P/E (fye Dec 31, 2012)1 8. 21 PEG proportion (5 yr expected)1 1. 32 Price/Sales (ttm) 0. 91 Price/Book (mrq) 2. 0 Enterprise Value/Revenue (ttm)3 0. 93 institutional Ownership 49. 12% Earnings Yield 9. 28% Return on equity (RoE) 24. 69% 36 month Beta 0. 9 Dividend Yield 2. 48% Profit Margin 8. 51% Current Ratio 0. 97 Debt to equity ratio 0. 07 1Source Yahoo finance http//ycharts. om/companies/XOM/return_on_equity ANALYSIS Exxon Mobil (XOM) is the largest market capitalized oil company in the world which in 2008 obtained the highest quarterly and annual profit in United States history. The union plans to invest $ one hundred twenty-five billion over the next five years to develop new technology, deliver new Upstream projects, increase refining capacity, and grow their Chemical business. Exxon Mobils revenue and profit have increased 60% and 79% respectively in the last 5 years. The Company exhibits a healthy profit rim and return on equity of 8. 51% and 20. 4% respectively and maintains an above average earnings r evert of 10. 27%. Exxon Mobil has plenty of liquidity enabling the Company to pay all its long-term debt in less(prenominal) than three months on profit alone. Exxon Mobil is valued at $52. 1 as of August 15th 2011. The Company is 4 2. 61% overvalued for the reliable price of $74. 29. The PB ratio is slightly above the industry average of 2. 0. Risks to Exxon Mobil take on depreciating reserves, decreasing number of new oil fields, adverse environmental impacts, government regulations, geopolitical happens, market volatility, macroeconomic difficulties, etc.Balance Sheet The balance sheet of XOM is pristine. Debt comprises only 9% of add together capital, and in a business that is very capital intensive, thats a great sign. The current ratio is low at 0. 94, slightly lower than the generally accepted safe level of 1. $30 billion in earnings in 2010 is more than enough to repay the roughly $15 billion in total debt the company has in only a few years. Return on Equity The return on equity closely followed the rise of oil prices up until 2008, the fall in 2008- 2009 and the subsequent increase ever since. Right now Exxon-Mobil has a high return on equity of 20%.Given the high oil prices, I expect ROE to reach its 2008 highs this year. Rather than focus on absolute value for this indicator, I generally want to see at least a stable return on equity over condemnation. Dividends Exxon Mobil has paid an increasing dividend for the past 27 years, and according to their website, averaged 5. 7% over that time period. The most recent increase came on April 27 of this year, when they raised the quarterly payout 6. 8% from $0. 44 to $0. 47 a share. This is an annual raise from $1. 74 to $1. 88, or 8%. Projections 2011 2012 2013 2014 2015 Dividends Per Share $1. 4 $2. 00 $2. 04 $2. 07 $2. 10 Dividend step-up 11. 7% 2. 7% 2. 4% 1. 3% 1. 3% DIRECT COMPETITOR COMPARISON COP CVX XOM Industry Market Cap 91. 75B 195. 65B 360. 57B 26. 52B Employees 29,900 62,000 83,600 11. 00K Qtrly Rev Growth (yoy) 45. 70% 30. 60% 36. 30% 8. 0% Revenue (ttm) 210. 76B 216. 90B 392. 72B 18. 63B vulgar Margin (ttm) 23. 43% 32. 58% 31. 45% 32. 51% EBITDA (ttm) 28. 78B 45. 90B 65. 78B 4. 19B Operating Margin (ttm) 9. 46% 15. 07% 12. 74% 11. 65% Net Income (ttm) 11. 3B 23. 01B 37. 93B N/A EPS (ttm) 7. 93 11. 45 7. 59 2. 46 P/E (ttm) 8. 43 8. 53 9. 78 12. 94 PEG (5 yr expected) 6. 21 1. 61 1. 32 1. 14 P/S (ttm) 0. 43 0. 90 0. 91 1. 39 P/E ratios are higher for firms with strong growth prospects, other things held constant, but they are lower for riskier firms. All the three companies have P/E lower than the Industry average. Profit margin is very useful when comparingcompanies in similar industries. A higher profit margin indicates a more profitable company thathas better control overits costs compared toits competitors. Here again, XOM has a relatively good control of cost. As per the comparison of the ratios with industry average, Exxon Mobil is high performing company with higher ratios than industry standards.Current Market Price (as of 08/17/11) of the Stocks Company unwrap Current Market Price Chevron Corp $92. 02 ConocoPhillips $62. 29 Exxon Mobil $74. 29 EXXON MOBILS INTRINS IC rank Current US 90 days Treasury Bill Rate of Return 3. 5% diachronic return on long term Treasury Bond = 5. 8% Long term risk free rate = rRF = 5. 8% (historical return) Return for the market or an average stock(rM) For this project, it is assumed that the historical rate of return for the S&P500 is same as the market risk = 10. 4%. I am exploitation CAPM method to estimate the market risk premium and calculating the historical risk premium by comparing historical to historical rates. The historical risk premium is 10. 4 -5. 8 = 4. 6% necessitate Return on Common StockRequired return on common stock (rS) for Exxon Mobil rS = rRF + (rM rRF)*b = 5. 8% + (10. 4% 5. 8%) * 0. 49 = 8. 05% Dividend Growth Model Common stocks provide an expected future cash flow stream, and a stocks value is found as the present value of the expected future cash flow stream. The expected final stock price includes the return of the maestro investment plus an expected capital gain. The expect ed cash flow consists of two elements 1. the dividends expected in each year. 2. the price investors expect to receive when they sell the stock.Formula1 P hat 0 = D1/rS g Where P hat 0 = intrinsic value of the stock today as seen by the investor D1 = D0 (1 + g) = expected dividend in the first year. D0 = recent dividend paid g = expected dividend growth rate. rS = required rate of return Formula2 r hat S = D1/P0 + g Where r hat S = expected rate of return D1/P0 = expected dividend yield P0 = actual market price of the stock today. g = expected growth rate or capital gains yield. One would buy the stock only if expected rate of return is equal to or greater than required rate of return. For Exxon Mobil D0 = $1. 8 g = 5. 7 % rS = 8. 05% P0 = 1. 38 (1+ 0. 057)/ (0. 085 0. 057) = 1. 457/ 0. 0280 = $52. 1 The current price is greater than intrinsic value, the Exxon Mobil stock is overvalued by $22. 20 r hat S = 1. 96% + 5. 7% = 7. 66% The expected rate of return is less than required r ate of return, which means investor will not buy. Conclusion SELL Comparing the averaged value of $52. 10 and the closing price on 08/15/11 of $74. 29, XOM is adversely overpriced price, with an approximate 42. 6% difference. At this point in time, I think Exxon Mobils risks outweigh the potential opportunity here.While I feel the dividend is safe (at a 25% payout ratio) and the current yield is adequate (2. 48%), the Companys ability to increase the payout and create outsized returns for investors is limited by the Companys cyclic market and weak consensus estimates. Sources http//financialanalysisonline. com/ http//www. thedividendpig. com/? p=1395 http//investing. money. msn. com/investments/stock-price? symbol=xom http//www. stock-analysis-on. net/NYSE/Company/Exxon-Mobil-Corp/Valuation/RatiosCurrent-Valuation-Ratios http//www. dailyfinance. com/2011/08/08/big-oil-outlook-major-oil-stocks-with-bullish-opti/? ource=TheMotleyFool http//www. exxonmobil. com/Corporate/Files/n ews_pubs_sar_2010. pdf http//www. exxonmobil. com/embodied/investor_dividend. aspx http//ycharts. com/companies/XOM/price_to_book_value http//financialanalysisonline. com 1 1 Data provided by Thomson Reuters 2 Data provided by EDGAR Online 3 Data derived from multiple sources or calculated by Yahoo Finance 4 Data provided by Morningstar, Inc. 5 Shares outstanding is taken from the most recently filed quarterly or annual report and Market Cap is calculated using shares outstanding.