Exxon After the Sell-Off, There are Still Better Options
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Seems odd to beat down a stock after earning $9.5 billion in a quarter, but that’s the world we live in. Oil is king, and ExxonMobil (NYSE: XOM) has a permanent place on the throne. Even after the recent “disappointing” earnings release Exxon remains the clear leader in the industry. But does that make the $403 billion behemoth – particularly after the recent sell-off – a buy? Let's be very clear about this - yes. And no.
On its own merits Exxon could and should be considered a sound investment option, particularly as the basis for a portfolio. A quick tap dance through the recently released Q1 earnings announcement indicates that even with the mere bazillion dollars in earnings, the company remains an industry stalwart.
An Exxon optimist will tell you the lowly $9.5 billion in Q1 earnings – equating to $2 per 4.7 billion shares outstanding – could be viewed as misleading. Company management has made it clear they’re on a long-term investment spree and the related spending was responsible for the 7% decline in earnings per share. CEO Rex Tillerson was quick to point out that exploration expenditures jumped a full $1 billion vs. Q1 of 2011 – up to a whopping $8.8 billion. That’s a lot of digging around. If you were so inclined, you could add that additional expense back into the final numbers and find that suddenly Exxon’s quarter falls right in line.
Proponents would also like you to know that revenue was actually up nearly 9% quarter-over-quarter, coming in at $124.1 billion. Though short of consensus estimates/guesstimates that’s certainly something shareholders can hang their hats on. And Exxon is nothing if not market savvy – the announcement of a 21% hike in the dividend and an oh-by-the-way don’t forget about our plans to buyback $5 billion in stock helped ease investor angst and limit some downside.
Before Exxon fanatics bust a vessel, it’s worth noting the company remains a decent investment option – even before the recent drop in price. And now with a 2.63% dividend and a slowly improving economy Exxon isn’t in dire straits by any means.
But here’s the thing – there are better options for those interested in profiting from what most expect to be continued strength in oil and gas prices. At under 8 times earnings, a lower price to sales ratio and better gross margins, Chevron (NYSE: CVX) offers investors more upside. Not to mention a dividend of 3.12% - higher than the new and improved Exxon payout. Of course with an earnings conference call scheduled for early on April 27, buying into that will make some investors a bit uneasy - and rightfully so.
ConocoPhillips’ (NYSE: COP) 3.67% dividend yield and lower P/E (among other measures) is also an option worth looking into. While not as strong an opportunity as Chevron – ConocoPhillips has some work to do in improving margins and return on equity - the company is still worth a good look. And for the dividend hungry – and there are a lot you out there nowadays – Royal Dutch Shell (NYSE: RDS-A) is not only a better value than Exxon, the company’s 4.57% dividend is easily tops for the big boys on the block.
When it’s all said and done the industry as a whole is fairly sound – regardless of Exxon “missing” numbers. As an investor you could do a lot worse than Exxon, there’s no doubt about it. But you can do better.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.