SWOT Analysis: ExxonMobil
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Even Dow-30 components need to be viewed within a broader investment framework like a strengths, opportunities, weaknesses, and threats analysis (SWOT). For example, ExxonMobil (NYSE: XOM) is one of the largest and most widely followed companies in the world, but what do you think of it? Just because lots of people can tell you ExxonMobil is an energy company, doesn't mean they've thought meaningfully about what that means, both good and bad.
To create a SWOT analysis, all you need to do is make a quick list of what you consider a company's strengths and weaknesses, which are both internal factors, and the opportunities and threats it faces, which are both external factors. In the end, you'll have a valuable, and more complete, picture of your investment candidate.
I was recently reviewing a few big names in the energy industry, and I spent some time with ExxonMobil. The company is one of the largest publicly traded energy companies in the world. It is involved in the exploration for, and production of, crude oil and natural gas across the globe. It also manufactures petroleum products, and transports and sells crude oil, natural gas, and petroleum products. The company is also a major manufacturer and marketer of commodity petrochemicals, such as olefins, aromatics, and polyethylene and polypropylene plastics, among other items. It does a lot and does most everything well.
- Massive operational scope.
- Financially strong. Well known and highly regarded brands.
- Large and historically successful research and development efforts.
- Management has a long-term focus and the ability to stay the course.
- Must constantly find new reserves of a scarce resource to remain competitive.
- Products are, for the most part, commodities.
- Regardless of company efforts, it will always be viewed as an environmental pariah.
- Entanglement in government activities is a necessity, but complex, expensive, and raft with pitfalls.
- Long-term focus could result in management following an ill-advised path for too long.
- New techniques and technologies that increase access to oil and natural gas, such as occurred in shale gas. The expectation for increasing demand for oil and natural gas over the long term.
- Often volatile and virtually unpredictable commodity prices.
- Volatile governments and social structures in many markets where it has no choice but to operate.
- Other fuel sources, such as electricity, supplanting oil and natural gas as fuels.
ExxonMobil is really a great company. It has a fair number of internal and external negatives to deal with, but it has historically dealt with such issues quite well. The big problem with ExxonMobil is that the market is well aware of how good the company is. As such, it is usually afforded a premium price compared to similarly strong companies with only slightly less impressive long-term records.
For example, fellow Dow-30 member Chevron (NYSE: CVX) also has a global business, strong operating results, and great brand recognition. However, it usually trades at a slight discount to ExxonMobil. Occasionally the discount can get quite wide, which can make Chevron a much better option, particularly for a dividend investor. Indeed, a single percentage point difference in dividend yield can be material when you're trying to live off of your investments.
Foreign energy giants can offer even more value, particularly when Europe is going through periods of economic turbulence, like it is today. Companies such as Royal Dutch Shell (NYSE: RDS-A), BP (NYSE: BP), and Total (NYSE: TOT) all provide materially more income via dividends than ExxonMobil. In fact, BP and Total both yield twice as much. True, BP was involved in the massive spill in the Gulf of Mexico that quite literally had industry-wide repercussions, but most of the haze surrounding that event has passed and the company's future now appears much brighter. Of course a recent foray into Russia is worth monitoring, since that country isn't known for being business friendly with outsiders. Total, meanwhile, has a great deal of exposure to financially struggling countries, but it is financially strong and should be able to weather any problems that come from Europe's woes. Moreover, its chemical operations are particularly appealing. Royal Dutch Shell, meanwhile, is a good company without as much baggage, but still located in a financially weak region. Its yield isn't quite double that of ExxonMobil, despite its overall similarity, including a move toward natural gas.
I'm going to dig a bit deeper into ExxonMobil at some point, looking at the greatest risks I think could impact its long-term growth, which I hope to post soon. However, at this point, I'm not sure that this industry giant is worth the premium it is being afforded.
ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.