Exxon Mobil Stock Analysis

STOCK ANALYSIS track Exxon Mobil can (XOM) idealistic 15th , 2011 pic Industry Oil and Gas ope proportionalityns Sector Energy Recommendation SELL toll $74. 29 (as of luxurious 15th 2011, 400pm ET) Intrinsic Value $52. 10 or 42. 6% e real(prenominal)wherevalued Fundamentals Grade A Investment Style Large cap Blend CORPORATE INFORMATION pic Location 5959 Las Colinas Boulevard Irving, TX 75039 Phone 972-4441000 autotype 972-4441348 Web Site http//www. exxonmobil. com/ Employees 83,000 Exchange NYSE BUSINESS SUMMARYExxon Mobil Corporation (Exxon Mobil) through its divisions and affiliates is engaged in exploration for, and production of, crude rock fossil fossil oil color and innate(p) gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is the largest integ regularised oil fellowship, with operations in over 200 countries. This globally diversified enterprise produces superior bring backs in it s stemma segments when compared to other major oil and gas companies. Exxon has a strong sleep tack with a change position of approximately $13B and 0. 7 Debt-to equity. Exxon has the liquid and credit to invest in high return projects around the instauration. Prices for oil and gas are evaluate to rise in the foreseeable future. uphill food market growing and increasing need for energy will issue upward pressure on hurts. Exxon will benefit as the worlds largest oil and gas company (by reserves, excluding national oil companies). The medium industry return is 27%, which is greater than that of S&P500 (21%). Exxons all-stock obtain of XTO Energy is dilutive to share holders and non evaluate to make up EPS in 2011 or 2012. Exxons size and breadth of operations make it difficult to bewilder investments large copious to produce market beating result. We expect Exxons growth to slightly lag the overall economy, especially smaller exploration and production companie s that guide better investment opportunities relative 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 amaze at a high price and produce a reject return. Production from Exxons Upstream segment (exploration and production of oil and gas) has been declining (down 30% since 2006). While the acquisition of XTO will replace some of this lost production, it is anticipate that the company will continue to experience declining production from its existing fields. pick up STATISTICS commercialize roof (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 flag Ratio (5 yr expected)1 1. 32 Price/Sales (ttm) 0. 91 Price/Book (mrq) 2. 0 Enterprise Value/ revenue enhancement (ttm)3 0. 93 institutional Ownership 49. 12% Earnings recall 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 chawbacon 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 earn in United States history. The Company plans to invest $125 billion over the next five years to develop natural technology, deliver new Upstream projects, increase refining capacity, and grow their Chemical business. Exxon Mobils revenue and attain have increased 60% and 79% respectively in the last 5 years. The Company exhibits a healthy profit tolerance and return on equity of 8. 51% and 20. 4% respectively and maintains an above average earnings cave in of 10. 27%. Exxon Mobil has plenty of liquidity enable the Company to pay all its long-term debt in less than threesome months on profit alone. Exxon Mobil is valued at $52. 1 as of August 15th 2011. The Company is 42. 61% overvalued for the underway price of $74. 29. The PB ratio is slightly above the industry average of 2. 0. Risks to Exxon Mobil include depreciating reserves, fall number of new oil fields, adverse environmental impacts, government regulations, geopolitical risks, market volatility, macroeconomic difficulties, etc.Balance Sheet The balance sheet of XOM is pristine. Debt comprises altogether 9% of total capital, and in a business that is very capital intensive, thats a great sign. The current ratio is let out at 0. 94, slightly lower than the generally accepted safe take aim 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 comeliness 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 flat Exxon-Mobil has a high return on equity of 20%. presumptuousness the high oil prices, I expect ROE to reach its 2008 highs this year. kinda than focus on absolute values for this indicator, I generally inadequacy to see at least a stable return on equity over time. Dividends Exxon Mobil has paid an increasing dividend for the past 27 years, and fit 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 Growth 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 Gross Margin (ttm) 23. 43% 32. 58% 31. 45% 3 2. 51% EBITDA (ttm) 28. 78B 45. 90B 65. 78B 4. 19B operational 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 run into overits costs compared toits competitors. Here again, XOM has a relatively good realize 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 pick up Current Market Price Chevro n Corp $92. 02 ConocoPhillips $62. 29 Exxon Mobil $74. 29 EXXON MOBILS INTRINSIC VALUE Current US 90 long time Treasury Bill Rate of Return 3. 5% Historical return on long term Treasury Bond = 5. 8% longsighted 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 using CAPM method to estimate the market risk premium and calculative the historical risk premium by comparing historical to historical rates. The historical risk premium is 10. 4 -5. 8 = 4. 6% undeniable 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 original investment positivist an expected capital gain. The expected 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 = indwelling 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 = compulsory 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 unavoidable 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 ove rvalued by $22. 20 r hat S = 1. 96% + 5. 7% = 7. 66% The expected rate of return is less than required rate 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 outstrip 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 cyclical market and wispy 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-ou tlook-major-oil-stocks-with-bullish-opti/? ource=TheMotleyFool http//www. exxonmobil. com/ incarnate/Files/news_pubs_sar_2010. pdf http//www. exxonmobil. com/corporate/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 interpreted from the most recently filed quarterly or annual report and Market Cap is calculated using shares outstanding.