The King of the Energy World

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to pinpoint on the most valuable energy company in the world, ExxonMobil Corporation (NYSE: XOM).

The Business:

Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, however also allows them to spot trends blind to unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. ExxonMobil is a diversified manufacturer and marketer of commodity petrochemicals, and also is involved in the exploration, production, and transportation of crude oil, natural gas, and petroleum products. Based on market capitalization, Exxon is valued at $397.80 billion. The company’s strong business model results in Exxon possessing a profit margin of 8.64%.

Strengths:

  • Solid Revenue Growth: In 2003, Exxon reported revenue of $246.74 billion; in 2012, the company announced revenue of $482.29 billion, representing year over year annual growth of 6.93%, a trend which is highly anticipated to sustain into the future with projections placing 2019 revenue at $715 billion (this growth has been a result of consistent reinvestment by the company)
  • Dividend: Currently, the company pays out quarterly dividends of $0.57, which annualized puts the dividend as yielding 2.55%, a major advantage for long-term investors
  • Basement Valuation: At the moment, ExxonMobil carries a price earnings ratio of 9.21 and a price to sales ratio of 0.82; both of which indicate a company trading with a basement valuation
  • Relatively Low Volatility: Presently, the company withholds a beta ratio of 0.50, representing a company trading with considerably less volatility than the overall market, a major upside for long-term investors
  • Cash Flow Position: In 2011, Exxon generated $56.66 billion in cash flow, up from $30.00 billion in 2003, and this cash flow position is extremely advantageous as it gives the company the financial security to reward shareholders
  • Institutional Vote of Confidence: 46.25% of shares outstanding are held by institutional investors, equating to nearly $200 billion, displaying the confidence some of largest investors in the world have in the company and its future
  • Broad Diversification of Business: ExxonMobil’s business is spread across the world, with no one region making up more than roughly 33% of overall business, and with this broad diversification comes a greater level of predictability and security for investors
  • Long Term Trend of Margin Expansion: In 1990, the company’s profit margin was sitting around 5%, which has expanded to the current 8.64% level, and this trend of long-term margin expansion is a major strength

Weaknesses:

  • Net Debt: Despite possessing $13 billion in cash and cash equivalents on their balance sheets, the company’s $47 billion in debt results in a net debt of $34 billion, or $7.44 per share, a financial weakness of the company

Opportunities:

  • Dividend Growth: Since implementing their dividend program in 1882, ExxonMobil has consistently raised their dividend payouts and should continue to do so well into the future
  • Acquisitions: The company is consistently utilizing its $12.66 billion in cash to acquire new properties, and further acquisitions could add to the company’s production capacity
  • Growth in Upstream: Exxon’s upstream segment, also known as exploration and production, which made up 83.90% of overall business in terms of earnings after income taxes in 2011, experienced substantial growth because of 24 opportunity captures in seven countries in 2011, adding 4.1 billion net oil equivalent barrels to the company’s resource base; looking forward the company is developing 21 major projects in the next three years, expecting to add 600 thousand oil equivalent barrels per day to the company’s production capacity, presenting incredible opportunity for growth
  • Strength in Energy Prices: Strength in energy prices such as oil and natural gas lead to greater profit for the company, if operating expenses are able to remain steady, presenting opportunity for margin expansion
  • Research & Development: Since 2007, ExxonMobil has poured $4.8 billion into research and development spending, and any technologies that results from this investment could fuel production growth
  • Growing Energy Demand: The company expects global energy demand to increase 30% from 2010 to 2040, due to expanding prosperity and a rise in the global population to nearly 9 billion people, and Exxon Mobil is presented the opportunity to meet growing energy demand and fuel revenue growth

Threats:

  • Weakness in Energy Prices: Faltering energy prices could squeeze the company’s margins and threaten business

Competitors:

Major publicly traded competitors of Exxon include Chevron Corporation (NYSE: CVX), BP PLC (NYSE: BP), Total SA (NYSE: TOT), and Eni SPA (NYSE: E). All of these companies operate in the energy industry and compete directly with Exxon. Chevron is valued at $226.88 billion, pays out a dividend yielding 3.11%, and carries a price to earnings ratio of 8.70. BP is valued at $132.70 billion, pays out a dividend yielding 4.91%, and carries a price to earnings ratio of 11.49. Total is valued at $116.29 billion, pays out a dividend yielding 5.89%, and carries a price to earnings ratio of 8.24. Eni is valued at $77.55 billion, pays out a dividend yielding 5.62%, and carries a price to earnings ratio of 8.69.

The Foolish Bottom Line:  

Financially, the only improvement the company could make is erasing its minor debt position. The company possesses a proven track record of consistent revenue growth, a growing dividend, and a basement valuation. Looking forward, Exxon should draw growth from meeting growing demand for global energy and strengthening energy prices. All in all, Exxon Mobil is a tremendous play on the global energy industry of tomorrow and should hand investors returns unmatched by the overall markets for decades to come. 


makinmoney2424 has no position in any stocks mentioned. The Motley Fool recommends Chevron and Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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