Oil & Gas Stocks

Exxon Mobil Corporation Valuation – August 2016 $XOM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Exxon Mobil Corporation (XOM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Exxon Mobil Corporation is an energy company. The Company is engaged in the exploration and production of crude oil and natural gas, manufacturing of petroleum products, and transportation and sale of crude oil, natural gas and petroleum products. The Company also manufactures and markets petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and various specialty products. The Company operates through the Upstream, Downstream, Chemical, and Corporate and Financing segments. The Upstream segment operates to explore for and produce crude oil and natural gas. The Downstream segment operates to manufacture and sell petroleum products. The Chemical segment operates to manufacture and sell petrochemicals. The Company’s projects include the Kearl project, Heidelberg project, the Point Thomson project, the Hadrian South project, the Lucius project, the Barzan project, the Arkutun-Dagi project, and the Upper Zakum 750 project, among others.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of XOM – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $369,475,369,935 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.89 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -33.07% Fail
6. Moderate PEmg Ratio PEmg < 20 18.53 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.18 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.89 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.20 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

XOM value chart August 2016

EPSmg $4.80
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $69.59
MG Value based on 0% Growth $40.79
Market Implied Growth Rate 5.01%
Current Price $88.91
% of Intrinsic Value N/A

Exxon Mobil Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $7.83 in 2012 to an estimated $4.8 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.01% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Exxon Mobil Corporation revealed the company was trading above its Graham Number of $41.6. The company pays a dividend of $2.94 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.53, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.17.

Exxon Mobil Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

XOM charts August 2016

Net Current Asset Value (NCAV) -$30.17
Graham Number $41.60
PEmg 18.53
Current Ratio 0.89
PB Ratio 2.18
Current Dividend $2.94
Dividend Yield 3.31%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $45,828,000,000
Total Current Liabilities $51,504,000,000
Long-Term Debt $29,499,000,000
Total Assets $342,473,000,000
Intangible Assets $0
Total Liabilities $171,882,000,000
Shares Outstanding (Diluted Average) 4,178,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.87
Dec2015 $3.85
Dec2014 $7.60
Dec2013 $7.37
Dec2012 $9.70
Dec2011 $8.42
Dec2010 $6.22
Dec2009 $3.98
Dec2008 $8.66
Dec2007 $7.26
Dec2006 $6.62
Dec2005 $5.71
Dec2004 $3.89
Dec2003 $3.23
Dec2002 $1.68
Dec2001 $2.21
Dec2000 $2.52
Dec1999 $1.13
Dec1998 $1.14
Dec1997 $1.69
Dec1996 $1.51

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.80
Dec2015 $6.64
Dec2014 $7.98
Dec2013 $7.82
Dec2012 $7.83
Dec2011 $6.90
Dec2010 $6.28
Dec2009 $6.35
Dec2008 $7.17
Dec2007 $6.06
Dec2006 $5.05
Dec2005 $3.96
Dec2004 $2.96
Dec2003 $2.38
Dec2002 $1.88
Dec2001 $1.90
Dec2000 $1.69

Recommended Reading:

Other ModernGraham posts about the company

Exxon Mobil Corporation Analysis – 2015 Annual Update $XOM
20 Companies in the Research Spotlight This Week – June 7, 2014
Exxon Mobil Corp 2014 Annual Valuation $XOM
16 Companies in the Spotlight This Week – 3/8/14
Exxon Mobil Corporation (XOM) Quarterly Valuation

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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