ModernGraham Valuation: Exxon Mobil (XOM)


Company Profile (obtained from Google Finance): Exxon Mobil Corporation (Exxon Mobil) is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. The Company has a number of divisions and affiliates with names that include ExxonMobil, Exxon, Esso or Mobil. Divisions and affiliated companies of ExxonMobil operate or market products in the United States and other countries of the world. Their principal business is energy, involving exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. In January 2012, Apache Corporation acquired Exxon Mobil’s Mobil North Sea Limited assets including the Beryl field and related properties. In April 2013, BNK Petroleum (US) Inc. sold Tishomingo Field, Oklahoma assets other than the Caney and upper Sycamore formations to XTO Energy Inc., a subsidiary of Exxon Mobil Corporation.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (explanation of the ModernGraham valuation model):

MG Value $128
MG Opinion Undervalued
Value Based on 3% Growth $116
Value Based on 0% Growth $68
Market Implied Growth Rate 1.49%
Net Current Asset Value (NCAV) -$25.70
PEmg 11.49
Current Ratio 0.86
PB Ratio 2.45

Key Data:

Balance Sheet – 9/30/2013 (an Introduction to the Balance Sheet)

Current Assets $62,844,000,000
Current Liabilities $72,688,000,000
Total Debt $7,496,000,000
Total Assets $341,615,000,000
Intangible Assets $7,888,000,000
Total Liabilities $175,968,000,000
Outstanding Shares 4,402,000,000

Earnings Per Share – Diluted

2013 (estimate) $7.24
2012 $10.30
2011 $8.66
2010 $6.41
2009 $4.07
2008 $8.78
2007 $7.28
2006 $6.62
2005 $5.71
2004 $3.89
2003 $3.15
2002 $1.62

Earnings Per Share – Modern Graham

2013 (estimate) $8.02
2012 $8.15
2011 $7.07
2010 $6.39
2009 $6.42
2008 $7.21


Exxon Mobil is a very attractive company at its current price, and has strong financials that pass the tests for both the defensive and enterprising investor.  The company’s earnings growth has been a little uneven from year to year, but the normalized earnings definitely are showing growth.  As a result, the ModernGraham valuation model indicates the company may be slightly undervalued.  Investors should take the time to look further at Exxon Mobil to determine if it fits the needs of individual portfolios, but overall it appears there is an opportunity here.

What do you think?  Is Exxon Mobil undervalued or does Mr. Market have it right?

Disclaimer:  The author did not hold a position in Exxon Mobil at the time of publication, and had no intention of purchasing a stake in the next 72 hours.

Photo Credit:  Andrew Magill

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