All Gassed Up With Exxon

By Ryan Guenette - August 23, 2012 | Tickers: BP, CVX, E, XOM, TOT | 0 Comments

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ExxonMobil (NYSE: XOM) is comfortably the second largest company in the world, by market capitalization, topped only by Apple. Exxon is most prominently known for its principal business of the exploration and production of crude oil and natural gas. However, Exxon also manufactures petroleum products; and is involved in the transportation and sale of crude oil, natural gas, and petroleum products. This behemoth also manufactures and markets commodity petrochemicals; including olefin, aromatics, polyethylene, polypropylene plastics, and a range of specialty products. Exxon has rallied 144.52% over the past decade, in which a time the S&P 500 has advanced a meager 36.40%. So is it time to get all gassed up with Exxon as the stock nears all-time highs?  

Rock-Solid Fundamentals

In 2002, ExxonMobil reported earnings per share of $1.71. In 2012, analyst consensus projects Exxon deriving $8.41 from its business operations. That represents an increase of 391.81% in earnings over a decade. Based on these statistics, the company’s compound annual growth rate (CAGR) is 17.27%, a tremendous feat for a company of such magnitude. Increasing earnings each year during this period, excluding the years in the midst of the financial downturn, Exxon grows with the global economy. Additionally, Exxon currently pays out an annual dividend of $2.28, which at the current price, puts the company’s dividend as yielding 2.57%. Exxon’s dividend is up from 2011’s annual dividend of $1.88, and is further expected to expand in the future. By 2014, the street anticipates the company’s dividend to reach $2.50. ExxonMobil has raised its dividend payouts 28 years in a row, due to its strong cash flow, and should continue this streak well into the future. From this we can see ExxonMobil’s tremendous underlying financial resolve, annualized double digit growth rate over a decade, and long profile of growing dividends.

The chart below displays the company’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.   

Fundamental Market Trend

Nearly every indicator tracking and projecting the price of energy is pointing higher. First, and most importantly, there is supply and demand. World energy consumption is estimated to skyrocket, as both living standards increase in emerging market economies and the percentage of the population in the middle class or above grows.  2035’s energy consumption is anticipated to be 52.48% higher than 2008’s, as the chart below displays.  

Meanwhile as global demand grows, the supply of oil and other liquids utilized for energy are projected to decrease, as the chart below displays.

The classic scenario of growing demand and dwindling supply leads to higher prices, benefiting ExxonMobil.

Additionally, as the Federal Reserve pumps more and more money into the economy, the dollar gets weaker and weaker. As the dollar gets weaker, oil gets stronger. Simply put, a falling dollar means a rising price of oil. So it's of no surprise that many analysts are calling for higher oil prices in the future. This will improve Exxon’s margins, and increase profits. Additionally, as they search farther and wider than ever before, their massive size and significant funding will allow the company to innovate and develop solutions that are renewable, such as solar and wind energy. Exxon’s vast diversity will allow the company to weather times of lower oil prices, and be a trailblazer in providing the energy of tomorrow.

Who is the King of Oil?

Compared to some of ExxonMobil’s most prominent competitors, such as: Chevron Corporation (NYSE: CVX), Total S.A. (NYSE: TOT), BP plc (NYSE: BP), and Eni SpA (NYSE: E), Exxon compares relatively favorably.

In terms of growth, Chevron tops the charts, while BP grows at the most mature pace. All companies pay out substantial dividends, with Eni SpA possessing the largest dividend, and ExxonMobil possessing the fastest growing dividend. In the fundamental ratio comparison, all companies trade with multiples under 10, indicating bargains. When growth is taken into account, Chevron appears to be a bargain, while ExxonMobil appears a little pricy. In the net profit margin comparison, Chevron stands out the upside, while Eni SpA stands out to the downside.

The foolish Bottom Line

Over the past decade, ExxonMobil’s stock has risen 144.52%, while its earnings per share have grown 391.81%, indicating that Exxon’s stock is the cheapest it has been for years. The chart below displays the historically low multiple Exxon is now trading at.

ExxonMobil is the second largest company in the world, and will be able to weather any downturn due to its vast diversity. Exxon’s underlying financial strength is impenetrable allowing the company to continuously grow and expand its dividend. With an annualized double digit growth rate, Exxon will be able to reinvest into its own business and invest in innovative projects, such as renewable energies. The foolish bottom line is that ExxonMobil is the second largest company in the world, should benefit from the long term trend of rising oil prices, will continue to raise its dividend, and will be fueling the world well into the future. 

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