Exxon Mobil Corporation (XOM) Stock Analysis

Market Capitalization: $463.73 Billion
Shares Outstanding: 4.40 Billion
Sector: Energy
Industry: Oil & Gas Integrated
Analysis as of: December 19, 2024

1. Company Overview

Exxon Mobil Corporation (NYSE: XOM) is one of the world’s largest publicly traded international oil and gas companies. Headquartered in Irving, Texas, ExxonMobil engages in the exploration, production, transportation, and sale of crude oil, natural gas, and petroleum products. The company operates through three main segments: Upstream, Downstream, and Chemical.

Key Business Segments:

• Upstream:
  
  • Exploration and Production: Involves the exploration and extraction of crude oil and natural gas.
  • Liquefied Natural Gas (LNG): Production and sale of LNG to global markets.
• Downstream:
  
  • Refining: Processing crude oil into refined petroleum products such as gasoline, diesel, and jet fuel.
  • Marketing and Distribution: Sale and distribution of refined products through a vast network of service stations and wholesale operations.
• Chemical:
  
  • Petrochemicals Production: Manufacturing of petrochemicals used in a wide range of industries, including plastics, synthetic fibers, and resins.

Strategic Initiatives:

• Sustainability and Environmental Responsibility: Committing to reducing greenhouse gas emissions, investing in carbon capture and storage (CCS) technologies, and exploring renewable energy sources.
• Operational Efficiency: Enhancing operational efficiencies through advanced technologies and cost optimization strategies to maintain profitability in volatile markets.
• Global Expansion: Expanding presence in key international markets to diversify revenue streams and capitalize on emerging opportunities.
• Innovation in Energy Solutions: Investing in research and development to innovate cleaner energy solutions and improve the sustainability of existing operations.

2. Financial Performance

a. Revenue and Growth

TTM Revenue (as of Sep 30, 2024): $343.82 Billion
YoY Revenue Growth (TTM): -1.59%

Analysis:

• Declining Revenue Growth: ExxonMobil has experienced a decline in revenue growth over the past year (-1.59% TTM), following a significant increase in FY 2022 (+44.76%). This volatility is indicative of the fluctuating oil prices and market dynamics inherent in the energy sector.
• Impact of Oil Price Volatility: Revenue fluctuations are closely tied to global oil prices, geopolitical events, and supply-demand imbalances. Recent declines may reflect downturns in oil prices or reduced demand in certain markets.
• Diversified Revenue Streams: While upstream operations primarily drive revenue, downstream and chemical segments provide additional stability, helping to mitigate the impact of volatility in any single segment.

b. Profitability

Net Income (TTM): $33.70 Billion
EPS (TTM): $8.03
Profit Margin: 9.80%
Return on Equity (ROE): 14.51%
Return on Assets (ROA): 7.08%

Analysis:

• Solid Net Income: ExxonMobil’s net income of $33.70 billion in the TTM period demonstrates strong profitability, supported by efficient operations and strategic cost management.
• Positive Profit Margins: An 8.04% profit margin indicates the company’s ability to convert revenue into profits effectively, even amidst revenue fluctuations.
• Healthy ROE and ROA: ROE of 14.51% and ROA of 7.08% reflect ExxonMobil’s effective use of shareholders’ equity and assets in generating profits, showcasing competent management and operational efficiency.

c. Margins

Gross Margin (TTM): 31.53%
Operating Margin (TTM): 13.75%
Profit Margin (TTM): 9.80%

Analysis:

• Moderate Gross Margin: A gross margin of 31.53% is consistent with industry standards for integrated oil and gas companies, balancing the cost of goods sold with revenue generation.
• Positive Operating Margin: An operating margin of 13.75% indicates effective management of operating expenses relative to gross profit, contributing positively to overall profitability.
• Consistent Profit Margin: Maintaining a profit margin close to 10% underscores ExxonMobil’s resilience and ability to sustain profitability in a highly competitive and volatile market.

d. Cash Flow

Operating Cash Flow (TTM): $56.48 Billion
Capital Expenditures (CapEx) (TTM): -$23.70 Billion
Free Cash Flow (FCF) (TTM): $32.78 Billion
FCF Per Share: $7.81

Analysis:

• Robust Operating Cash Flow: Operating cash flow of $56.48 billion indicates strong cash generation from core business activities, essential for funding operations and strategic initiatives.
• Significant Capital Investments: CapEx of -$23.70 billion reflects ongoing investments in exploration, production, and infrastructure to support future growth and maintain operational efficiency.
• Healthy Free Cash Flow: FCF of $32.78 billion demonstrates ExxonMobil’s ability to generate substantial cash after accounting for capital expenditures, supporting dividends, debt repayment, and shareholder returns.

3. Balance Sheet

Total Assets: $461.92 Billion
Total Liabilities: $185.52 Billion
Shareholders’ Equity: $276.40 Billion
Total Debt: $42.55 Billion
Cash & Equivalents: $26.93 Billion
Net Cash Position: -$15.62 Billion
Debt-to-Equity Ratio: 0.15
Current Ratio: 1.35
Quick Ratio: 0.98
Working Capital: $24.36 Billion

Analysis:

• Strong Asset Base: With total assets of $461.92 billion, ExxonMobil maintains a robust asset base to support its diverse operations and strategic initiatives.
• Low Debt Levels: A debt-to-equity ratio of 0.15 indicates minimal reliance on debt financing, enhancing financial stability and reducing financial risk.
• Adequate Liquidity: Current ratio of 1.35 and quick ratio of 0.98 suggest that ExxonMobil has sufficient liquidity to cover short-term liabilities, though the quick ratio is slightly below the ideal benchmark of 1.0.
• Negative Net Cash Position: A net cash position of -$15.62 billion indicates that ExxonMobil has more debt than cash on hand. However, this is manageable given the company’s strong cash flow generation and low debt levels.

4. Valuation

Current Stock Price (Dec 19, 2024): $106.42
PE Ratio (TTM): 13.15
Forward PE: 13.77
PEG Ratio: 3.06
Price-to-Sales (PS) Ratio: 1.29
Price-to-Book (PB) Ratio: 1.73
Price-to-Free Cash Flow (P/FCF) Ratio: 14.15
Price-to-Operating Cash Flow (P/OCF) Ratio: 8.21
EV/EBITDA: 6.70
EV/Sales: 1.39

Analysis:

• Attractive PE Ratios: A trailing PE ratio of 13.15 and a forward PE ratio of 13.77 suggest that ExxonMobil is undervalued relative to its earnings, making it potentially attractive to value investors.
• High PEG Ratio: A PEG ratio of 3.06 indicates that ExxonMobil is overvalued based on its earnings growth expectations. This suggests that the stock may be priced higher than justified by its growth prospects.
• Competitive PS and PB Ratios: PS ratio of 1.29 and PB ratio of 1.73 reflect that ExxonMobil is trading at a reasonable premium relative to its sales and book value, aligning with its strong market position and asset base.
• Favorable EV Ratios: EV/EBITDA of 6.70 and EV/Sales of 1.39 indicate that ExxonMobil is valued attractively in relation to its earnings before interest, taxes, depreciation, and amortization and its revenue, respectively.
• Moderate P/FCF and P/OCF Ratios: P/FCF ratio of 14.15 and P/OCF ratio of 8.21 suggest that ExxonMobil is reasonably priced relative to its free and operating cash flows, reflecting investor confidence in its cash-generating capabilities.

5. Market Performance

52-Week Range: $95.77 – $126.34
52-Week Price Change: +3.80%
Beta (5Y): 0.87
Relative Strength Index (RSI): 17.93
Average Volume (20 Days): 20,233,826
Short Interest: 41.12 Million (0.94% of Shares Outstanding)
Short Ratio (Days to Cover): 2.80

Analysis:

• Minimal Price Appreciation: ExxonMobil’s stock has appreciated by 3.80% over the past 52 weeks, indicating relatively stable performance compared to more volatile growth stocks.
• Lower Volatility: A beta of 0.87 suggests that ExxonMobil’s stock is less volatile than the broader market, offering a more stable investment option during market fluctuations.
• Oversold RSI: An RSI of 17.93 indicates that the stock is significantly oversold, potentially presenting a buying opportunity for value investors seeking bargains.
• High Trading Volume: An average volume of 20.23 million over the past 20 days reflects strong liquidity and active trading, facilitating ease of entry and exit for investors.
• Moderate Short Interest: With 0.94% of shares outstanding sold short and a short ratio of 2.80 days to cover, bearish sentiment is present but not excessive, reducing the likelihood of a short squeeze.

6. Financial Health and Risks

a. Liquidity

Current Ratio: 1.35
Quick Ratio: 0.98

Analysis:

• Adequate Liquidity: ExxonMobil’s current and quick ratios suggest that the company has sufficient liquidity to cover its short-term liabilities, although the quick ratio is slightly below the ideal benchmark of 1.0.
• Positive Working Capital: Working capital of $24.36 billion ensures that ExxonMobil has the necessary resources to support its ongoing operations and invest in growth opportunities.

b. Leverage

Total Debt: $42.55 Billion
Debt-to-Equity Ratio: 0.15
Debt-to-EBITDA Ratio: 0.57
Debt-to-FCF Ratio: 1.30
Interest Coverage Ratio: 48.68

Analysis:

• Low Leverage: A debt-to-equity ratio of 0.15 signifies minimal reliance on debt financing, enhancing financial stability and reducing financial risk.
• Manageable Debt Levels: Debt-to-EBITDA ratio of 0.57 indicates that ExxonMobil can comfortably service its debt with its earnings before interest, taxes, depreciation, and amortization.
• Adequate Debt Coverage: An interest coverage ratio of 48.68 demonstrates ExxonMobil’s strong ability to meet interest obligations from its earnings, significantly reducing default risk.

c. Profitability & Cash Flow

• Solid Profitability: ExxonMobil’s net income of $33.70 billion and profit margin of 9.80% highlight the company’s ability to generate profits from its operations, supported by efficient cost management.
• Healthy Operating Cash Flow: Operating cash flow of $56.48 billion indicates robust cash generation from core business activities, supporting operational needs and strategic initiatives.
• Substantial Free Cash Flow: Free cash flow of $32.78 billion provides ExxonMobil with ample flexibility to invest in growth initiatives, repay debt, and enhance shareholder value through dividends and share buybacks.

d. Operational Risks

• Oil Price Volatility: ExxonMobil’s revenue and profitability are highly sensitive to fluctuations in global oil prices, which are influenced by geopolitical events, supply-demand dynamics, and macroeconomic factors.
• Environmental Regulations: Increasing regulatory pressures related to environmental protection, carbon emissions, and sustainability can lead to higher operational costs and require significant capital investments.
• Operational Efficiency: Maintaining high levels of operational efficiency is critical. Disruptions in exploration, production, or refining processes could adversely impact financial performance.
• Technological Changes: Advancements in renewable energy and alternative fuels pose long-term challenges. ExxonMobil must innovate and adapt to stay competitive in a transitioning energy landscape.
• Geopolitical Risks: Operations in politically unstable regions expose ExxonMobil to risks such as expropriation, civil unrest, and changes in government policies.

e. Market & Regulatory Risks

• Regulatory Compliance: Navigating diverse and stringent regulatory environments across different countries can increase operational complexities and costs.
• Data Privacy and Security: Protecting sensitive operational and financial data is essential. Data breaches or cyber-attacks could result in significant financial and reputational damage.
• Economic Downturns: Global economic slowdowns can reduce demand for oil and gas products, impacting ExxonMobil’s revenue and profitability.
• Intellectual Property Risks: Protecting proprietary technologies and preventing intellectual property theft is crucial. Infringement issues could lead to legal disputes and loss of competitive advantage.
• Sustainability Pressures: Growing emphasis on sustainability requires ExxonMobil to continuously improve its environmental practices. Failure to meet sustainability standards could result in reputational damage and loss of consumer trust.

7. Conclusion

Pros:

• Attractive Valuation: With a trailing PE ratio of 13.15 and a forward PE ratio of 13.77, ExxonMobil is undervalued relative to its earnings, offering potential upside for value investors.
• Strong Dividend Yield: An annual dividend of $3.96 yielding 3.75% provides a steady income stream for income-focused investors, supported by a sustainable payout ratio of 49.34%.
• Low Leverage: A debt-to-equity ratio of 0.15 and a debt-to-EBITDA ratio of 0.57 indicate minimal reliance on debt, enhancing financial stability and reducing financial risk.
• Solid Cash Flow Generation: Operating cash flow of $56.48 billion and free cash flow of $32.78 billion provide ExxonMobil with the liquidity to fund operations, invest in growth initiatives, and return value to shareholders.
• Healthy Profit Margins: With a profit margin of 9.80%, ExxonMobil effectively converts revenue into profits, reflecting strong operational performance and cost management.
• Stable Financial Ratios: ROE of 14.51%, ROA of 7.08%, and ROIC of 10.41% demonstrate ExxonMobil’s ability to generate substantial returns on equity, assets, and invested capital.
• Moderate Short Interest: With 0.94% of shares outstanding sold short and a short ratio of 2.80 days to cover, bearish sentiment is present but not excessive, reducing the likelihood of a short squeeze.

Cons:

• Declining Revenue Growth: A YoY revenue growth of -1.59% in the TTM period indicates potential headwinds, possibly due to declining oil prices or reduced demand.
• High PEG Ratio: A PEG ratio of 3.06 suggests that ExxonMobil may be overvalued based on its earnings growth expectations, potentially limiting upside unless growth accelerates.
• Negative Net Cash Position: A net cash position of -$15.62 billion indicates that ExxonMobil has more debt than cash on hand, which could be a concern if cash flows were to decline.
• Dependence on Oil Prices: ExxonMobil’s financial performance is highly sensitive to fluctuations in global oil prices, making it vulnerable to market volatility and geopolitical events.
• Environmental and Regulatory Risks: Increasing regulatory pressures related to environmental protection and sustainability can lead to higher operational costs and require significant capital investments.
• Low Quick Ratio: A quick ratio of 0.98 is slightly below the ideal benchmark of 1.0, indicating potential reliance on inventory turnover and other current assets to meet short-term obligations.

Final Note

Exxon Mobil Corporation remains a pivotal player in the global energy sector, leveraging its extensive operations in upstream, downstream, and chemical segments to drive revenue and profitability. The company’s ability to generate strong cash flows and maintain healthy profit margins provides a solid foundation for sustaining dividends and funding strategic initiatives. However, ExxonMobil faces significant challenges related to oil price volatility, regulatory compliance, and the global shift towards sustainable energy sources. Balancing these opportunities and risks is essential for investors considering ExxonMobil as part of their portfolio.

Disclaimer:
This analysis is for informational purposes only and does not constitute investment advice. Investing involves risks, including potential loss of principal. Past performance is not indicative of future results. Consult a qualified financial advisor before making any investment decisions.