Why ExxonMobil Is Too Expensive Right Now
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With ExxonMobil (NYSE: XOM) trading near 52-week highs, I decided to take a closer look into the company to see if it is an attractive opportunity for investors. Here are six points I looked at while researching XOM:
Valuation: XOM’s trailing 5 year valuation metrics suggest that the stock is slightly undervalued as they are all slightly below their 5 year averages. XOM’s current P/B ratio is 2.5 and it has averaged 3.1 over the past 5 years with a high of 4.3 and a low of 2.0. XOM’s current P/S ratio is 0.9 and it has averaged 1.0 over the past 5 years with a high of 1.4 and low of 0.8. XOM’s current P/E ratio is 10.2 and it has averaged 11.7 over the past 5 years with a high of 17.1 and low of 8.4.
Price Target: The consensus price target for the analysts who follow XOM is $95. That is upside of about 12% from where the stock is currently at. This suggests that XOM is fairly valued at these levels.
Forward Valuation: ExxonMobil is trading at about $84 a share and analysts forecast XOM to report EPS of $8.40 next year for a forward P/E of 10.0. Petroleo Brasileiro (NYSE: PBR) is currently trading at about $28 a share and analysts expect the company to report EPS of $3.58 next year for a forward P/E ratio of 7.8. BP (NYSE: BP) is trading at about $44 a share and analysts forecast the company to report EPS of $6.55 next year for a forward P/E ratio of 6.7. XOM’s valuation is the highest of the three oil giants suggesting that the company is overvalued.
Debt: With the economy the way it is, it makes sense to take a closer look at the debt load to assess the financial risk. At the end of last quarter, XOM had debt of $16.7 billion and a trailing EBITDA of $69.8 billion for a debt/EBITDA ratio of 0.2. PBR had debt of $81.5 billion and a trailing EBITDA of $36.2 billion for a debt/EBITDA ratio of 2.3. BP had debt of $45.3 billion and a trailing EBITDA of $40.0 billion for a debt/EBITDA ratio of 1.13. XOM is the most conservatively capitalized out of the three companies and almost has no financial risk.
Dividend: XOM has a strong history of paying dividends and it has paid a dividend since 1982, when it paid a 40 cent quarterly dividend. The dividend has doubled over the past 10 years. It currently pays a 47 cents quarterly dividend for an annual dividend of $1.88 and yield of 2.2%.
Price Action: The stock struggled in the middle of last year but did recover to near 52 weeks highs by the end of the year. After trading between $78 and $87 between January and July, the stock dropped to below $67 in August before stabilizing in the $67-$74 range. The stock rallied all the way to over $86 a share in the beginning of January. XOM is trading above its 50 day moving average, which is at $80.62, and 200 day moving average, which is at $78.80. Resistance on the upside includes 52-week highs of $87. On the downside, the $81-82 range should be a strong support level followed by the $75 area.
Conclusion: XOM looks fairly value here and maybe even slightly overvalued. It is probably best to wait on the sidelines for a better entry into XOM or look elsewhere for exposure to the oil sector.
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