Shares of Exxon Mobil (XOM) jumped 2.1 % during today's afternoon session, bringing their 52 week performance to 26.0%. The stock seems to be undervalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's strong growth indicators and mixed market sentiment.
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas in the United States and internationally. The large-cap Energy company is based in Irving, United States and has 62,000 full time employees.
XOM's P/E Ratio Is Better Than the Sector Average
Compared to the Energy sector's average of 7.54, Exxon Mobil has a trailing twelve month price to earnings (P/E) ratio of 7.3 and an expected P/E ratio of 13.5. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $14.77 and $7.94 respectively.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Exxon Mobil's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.
Exxon Mobil Has a Negative Rate of Expected Growth
P/E ratios are falling out of favor as a means of valuing stocks for a number of reasons. Earnings are subject to manipulation, and the P/E ratio is static in time, in the sense that it doesn't take into account expected long term growth of the company. Although estimated long terms growth rates are just as easily manipulable as earnings, dividing Exxon Mobil's P/E ratio by its expected growth rate can tell us the relative market valuation of the company in relation to expected earnings growth.
The resulting metric, called price to earnings growth (PEG) is -1.29 for Exxon Mobil. Since the PEG ratio is negative and the company's reported earnings per share are positive, we can deduce that the company's expected growth rate is negative. Needless to say, this is a red flag for investors with a long term horizon.
XOM Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Exxon Mobil, the P/B value is 2.16 while the average for the Energy sector is 1.68.
XOM Is Generating Cash
Exxon Mobil has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 26.8%, compared to -6.8% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 15.2% and a coefficient of variability of 43.4%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-22 | 76,797,000 | -18,407,000 | 95,204,000 | 58.13 |
| 2022-02-23 | 48,129,000 | -12,076,000 | 60,205,000 | 88.44 |
| 2021-02-24 | 14,668,000 | -17,282,000 | 31,950,000 | -40.92 |
| 2020-02-26 | 29,716,000 | -24,361,000 | 54,077,000 | n/a |
Exxon Mobil Is Not a Profitable Business
If you are looking to make XOM a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and Exxon Mobil's management may be able to make the business profitable in the future.
Exxon Mobil's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-22 | 402,217,000 | -271,568,000 | 32.48 | 3.21 |
| 2022-02-23 | 278,983,000 | -191,199,000 | 31.47 | 2.24 |
| 2021-02-24 | 179,770,000 | -124,438,000 | 30.78 | 1.28 |
| 2020-02-26 | 259,497,000 | -180,627,000 | 30.39 | n/a |
Exxon Mobil's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-22 | 402,217,000 | -35,642,000 | 23.62 | 18.16 |
| 2022-02-23 | 278,983,000 | -32,021,000 | 19.99 | 1174.73 |
| 2021-02-24 | 179,770,000 | -58,667,000 | -1.86 | -110.5 |
| 2020-02-26 | 259,497,000 | -32,900,000 | 17.72 | n/a |
Exxon Mobil's cost of revenue is growing at a rate of -10.7% in contrast to -2.0% for operating expenses. Sales revenues, on the other hand, have experienced a 11.6% growth rate. As a result, the average gross margins growth is 1.7 and the average operating margins growth rate is 7.4, with coefficients of variability of 2.9% and 76.8% respectively.
We See Mixed Market Signals Regarding XOM
Exxon Mobil has an average rating of buy and target prices ranging from $132.63 to $97.2. At its current price of $107.47, the company is trading -3.7% away from its target price of $111.6. 0.7% of the company's shares are linked to short positions, and 60.7% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Vanguard Group Inc | 10% | 392,936,930 | $42,230,895,952 |
| 2023-03-31 | Blackrock Inc. | 7% | 277,965,286 | $29,874,318,688 |
| 2023-03-31 | State Street Corporation | 5% | 216,174,104 | $23,233,311,497 |
| 2023-03-31 | FMR, LLC | 4% | 144,949,334 | $15,578,429,450 |
| 2023-03-31 | Geode Capital Management, LLC | 2% | 73,871,122 | $7,939,298,724 |
| 2023-03-31 | Bank of America Corporation | 1% | 53,875,034 | $5,790,219,196 |
| 2023-03-31 | JP Morgan Chase & Company | 1% | 52,386,090 | $5,630,194,942 |
| 2023-03-31 | Morgan Stanley | 1% | 51,138,195 | $5,496,077,429 |
| 2023-03-31 | Bank Of New York Mellon Corporation | 1% | 49,497,412 | $5,319,734,279 |
| 2023-03-31 | Price (T.Rowe) Associates Inc | 1% | 47,592,122 | $5,114,963,239 |
