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Exxon Mobil Corp. (XOM)

September 06, 2024

Compared to: Chevron Corp. (CVX) | BP Plc (BP) | Energy Select Sector SPDR Fund (XLE)

Our reasoning

Exxon Mobil appears slightly undervalued based on its below-average P/E ratio, strong market position, and potential growth from the Pioneer acquisition and energy transition initiatives. However, this is balanced against higher-than-average EV/EBITDA and risks from commodity price volatility and regulatory changes, resulting in a small magnitude of undervaluation.

Key takeaways
  • Exxon Mobil is a global energy leader with a diversified portfolio of upstream, refining, and chemical operations, but faces significant industry and market volatility as well as evolving regulatory and technological challenges.
  • The company's recent acquisition of Pioneer Natural Resources has significantly expanded its Permian Basin footprint, positioning it for continued production growth in this key shale play.
  • Exxon Mobil is making progress on its emissions reduction goals, including plans to reach net-zero Scope 1 and 2 emissions in its Permian and Pioneer assets by 2030 and 2035 respectively, though it continues to face legal and regulatory risks related to climate change.
  • The company's financial performance remains highly dependent on commodity prices, refining/chemical margins, and its ability to maintain operational efficiency and cost discipline amid inflationary pressures.
  • Exxon Mobil's strong liquidity and access to capital provide it with the financial flexibility to fund strategic investments, shareholder returns, and manage risks, but it must continue to adapt to industry disruption and evolving market dynamics.
  • XOM's valuation metrics are currently below the industry average, which may present an opportunity for investors.
  • XOM's stock price has been relatively volatile over the past few years, but it has generally outperformed the Energy Select Sector SPDR Fund (XLE) and its peers.
  • XOM's future outlook is uncertain, but the company is well-positioned to benefit from the long-term growth in global energy demand. The company's recent acquisition of Pioneer Natural Resources is likely to have a positive impact on future earnings.
Undervalued
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Evaluation summary

  1. Company Overview:

    • Exxon Mobil Corp. (XOM) is a global energy company engaged in the exploration, production, refining, and marketing of crude oil, natural gas, and petrochemicals. The company operates through four main segments: Upstream, Energy Products, Chemical Products, and Specialty Products. XOM is one of the largest integrated oil and gas companies in the world, with operations in over 200 countries and territories. Its key products include crude oil, natural gas, gasoline, diesel, lubricants, and a wide range of petrochemicals and specialty products.
    • XOM's target market is global, encompassing consumers, businesses, and governments that rely on energy and petrochemical products. The company faces intense competition from other integrated oil and gas companies, as well as from alternative energy providers.
    • For comparative analysis, we will be using Chevron Corp. (CVX) and BP Plc (BP) as industry peers and the Energy Select Sector SPDR Fund (XLE) as a benchmark.

  2. Financial Performance:

    • XOM's revenue has been relatively stable over the past few years, with a slight decline in the most recent quarter. The company's profitability has been declining, as evidenced by decreasing gross margin, operating margin, and net margin.
    • XOM's return on average assets (ROA), return on average total equity (ROE), and return on average invested capital (ROIC) have all been below the industry average, indicating that the company is not as profitable as its peers.
    • Compared to its peers, XOM has consistently outperformed both CVX and BP over most of the analyzed periods, particularly in the past year. However, BP has outperformed XOM over the past three years, indicating that BP's long-term performance has been stronger.

  3. Operational Efficiency:

    • XOM's working capital has been decreasing, which may be due to a decline in profitability or changes in working capital. The company's current ratio and quick ratio are both below the industry average, indicating that the company may have difficulty meeting its short-term obligations.
    • XOM's cash flow from operations has been decreasing, which may be due to a decline in profitability or changes in working capital. The company is investing heavily in capital expenditures, which may be driven by its growth strategy.
    • XOM's free cash flow has been declining, which may be due to the company's increased capital expenditures and lower profitability. The company's free cash flow margin is also below the industry average, indicating that the company is not as efficient at generating free cash flow as its peers.
    • XOM's debt-to-equity ratio has been decreasing, indicating that the company is using less leverage. The company's leverage ratio is also below the industry average, indicating that the company has a lower level of financial leverage than its peers.

  4. Growth Opportunities:

    • XOM is pursuing growth opportunities through a combination of organic growth and acquisitions. The company is investing heavily in its advantaged assets, such as the Permian Basin and Guyana, to drive production growth.
    • XOM recently completed the acquisition of Pioneer Natural Resources Company, which significantly expanded its Permian Basin operations. The company is also developing new high-value businesses, such as Proxxima (high-performance thermoset resins) and carbon materials, to diversify its earnings and grow shareholder value.
    • XOM is focused on developing technologies like hydrogen, biofuels, and carbon capture and storage to capitalize on opportunities in the energy transition. The company believes that a serious approach to the energy transition should focus on moving the world from high carbon to low carbon energy, not simply from oil and gas to wind and solar.

  5. Risks and Threats:

    • XOM faces a number of risks, including commodity price volatility, regulatory and policy changes, operational risks, geopolitical and security risks, technological disruption, and litigation.
    • The company's financial performance remains highly dependent on commodity prices, refining/chemical margins, and its ability to maintain operational efficiency and cost discipline amid inflationary pressures.
    • XOM is facing various lawsuits from state/local governments related to climate change impacts. The company has reached settlements with the State of Texas and the EPA over alleged environmental violations at certain facilities.

  6. Valuation Analysis:

    • XOM's valuation metrics, such as P/E and EV/EBITDA, are currently below the industry average. This may be due to the company's declining profitability and the uncertainty surrounding the energy transition.
    • Compared to its peers, XOM's valuation metrics are generally in line with or slightly below those of CVX and BP. This suggests that XOM is currently trading at a discount to its peers, which may present an opportunity for investors.

  7. Price Performance:

    • XOM's stock price has been relatively volatile over the past few years, but it has generally outperformed the Energy Select Sector SPDR Fund (XLE) and its peers.
    • XOM's beta value consistently below 1 indicates that it is less sensitive to market movements than XLE. This suggests that XOM may be a more stable investment during periods of market volatility.

  8. Future Outlook:

    • XOM's future outlook is uncertain, but the company is well-positioned to benefit from the long-term growth in global energy demand. The company's recent acquisition of Pioneer Natural Resources is likely to have a positive impact on future earnings.
    • XOM's strong liquidity and access to capital provide it with the financial flexibility to fund strategic investments, shareholder returns, and manage risks. However, the company must continue to adapt to industry disruption and evolving market dynamics.

  9. Summary:

    • XOM is a global energy leader with a diversified portfolio of upstream, refining, and chemical operations. The company is facing a number of challenges, including declining profitability, increasing competition, and regulatory pressure. However, XOM is also well-positioned to benefit from the long-term growth in global energy demand.
    • XOM's financial performance is highly dependent on commodity prices, refining/chemical margins, and its ability to maintain operational efficiency and cost discipline amid inflationary pressures. The company's strong liquidity and access to capital provide it with the financial flexibility to fund strategic investments, shareholder returns, and manage risks.
    • XOM's valuation metrics are currently below the industry average, which may present an opportunity for investors. The company's stock price has been relatively volatile over the past few years, but it has generally outperformed the Energy Select Sector SPDR Fund (XLE) and its peers.
    • XOM's future outlook is uncertain, but the company is well-positioned to benefit from the long-term growth in global energy demand. The company's recent acquisition of Pioneer Natural Resources is likely to have a positive impact on future earnings.
Peer fundamentals 
Fundamentals
Insights
  • Exxon Mobil is experiencing a decline in profitability, as evidenced by decreasing margins and returns on assets.
  • The company's liquidity position is weakening, as evidenced by decreasing cash and working capital.
  • The company is investing heavily in capital expenditures, which may be driven by its growth strategy.
  • The company is increasing its dividend payments and repurchasing shares, indicating a commitment to shareholder returns.
  • The company's financial performance remains highly dependent on commodity prices, refining/chemical margins, and its ability to maintain operational efficiency and cost discipline amid inflationary pressures.
  • The company's strong liquidity and access to capital provide it with the financial flexibility to fund strategic investments, shareholder returns, and manage risks.
Analysis
  • Revenue - Revenue is decreasing, which may be due to softer market conditions or a decline in demand. - The company's recent acquisition of Pioneer Natural Resources is likely to have a positive impact on future earnings. - The company's strong liquidity and access to capital provide it with the financial flexibility to fund strategic investments, shareholder returns, and manage risks.
    • Profitability
      • The company's profitability is declining, as evidenced by the decreasing gross margin, operating margin, and net margin.
      • The company's return on average assets, return on average total equity, return on average total capital, and return on average invested capital are all below the industry average, indicating that the company is not as profitable as its peers.
    • Liquidity
      • The company's liquidity position is weakening, as evidenced by the decreasing cash & short term investments and working capital.
      • The company's current ratio and quick ratio are both below the industry average, indicating that the company may have difficulty meeting its short-term obligations.
    • Solvency
      • The company's solvency is strong, as evidenced by the decreasing total debt to total equity ratio and the decreasing debt / EBITDA.
      • The company's total debt to total equity ratio is significantly below the industry average, indicating that the company has a low level of financial leverage.
    • Operational Efficiency
      • The company's asset utilization efficiency is declining, as evidenced by the decreasing return on average assets, return on average total equity, return on average total capital, and return on average invested capital.
    • Cash Flow Analysis
      • The company's cash flow from operations is decreasing, which may be due to a decline in profitability or changes in working capital.
      • The company is investing heavily in capital expenditures, which may be driven by its growth strategy.
      • The company is acquiring new assets, which may be driven by its growth strategy.
      • The company is selling fixed assets and businesses, which may be part of its portfolio optimization strategy.
      • The company is increasing its dividend payments, which may indicate a commitment to shareholder returns.
      • The company is repurchasing shares, which may be a way to return capital to shareholders or to reduce the number of outstanding shares.
      • The company's overall capital allocation strategy is focused on both organic growth and shareholder returns.
    • Risk Factors
      • The company's financial performance remains highly dependent on commodity prices, refining/chemical margins, and its ability to maintain operational efficiency and cost discipline amid inflationary pressures.
      • The company's liquidity position is likely to remain under pressure due to the ongoing inflationary environment and the company's focus on capital expenditures.
      • The company must continue to adapt to industry disruption and evolving market dynamics.
    • Future Outlook
      • The company's future income statement is likely to be impacted by commodity prices, refining/chemical margins, and its ability to maintain operational efficiency and cost discipline amid inflationary pressures.
      • The company's recent acquisition of Pioneer Natural Resources is likely to have a positive impact on future earnings.
      • The company's strong liquidity and access to capital provide it with the financial flexibility to fund strategic investments, shareholder returns, and manage risks.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-09-04)
Energy Select Sector SPDR Fund (XLE)
  • Performance Comparison:
    • XOM has consistently outperformed XLE over all periods, demonstrating a stronger performance track record. This is particularly evident in the longer-term periods, with XOM outperforming XLE by 29.14% over the past three years.
    • While XOM has generally outperformed XLE, there have been periods of underperformance, such as in the 1-month period. This suggests that XOM's performance is not always consistent, and investors should consider the potential for short-term fluctuations.
  • Risk and Return Analysis:
    • XOM has provided higher annualized returns than XLE over all periods, indicating a stronger potential for growth. For example, XOM's annualized return over the past three years is 32.7%, compared to XLE's 26.94%.
    • XOM has also been more volatile than XLE, as evidenced by its higher annualized volatility. This suggests that XOM carries a higher level of risk, and investors should be prepared for potential price swings.
    • XOM's maximum drawdown of 18.73% is slightly lower than XLE's maximum drawdown of 26.04%. However, XLE has experienced more frequent drawdowns than XOM. This indicates that XOM may be less susceptible to significant price declines, but it does not mean that it is completely risk-free.
  • Risk-Adjusted Performance:
    • XOM's Sharpe ratio has generally been higher than XLE's, suggesting that XOM offers a better risk-adjusted return. This means that XOM has been able to generate higher returns for the level of risk it carries.
    • XOM's beta value consistently below 1 indicates that it is less sensitive to market movements than XLE. This suggests that XOM may be a more stable investment during periods of market volatility.
  • Overall Assessment:
    • XOM has demonstrated strong performance, outperforming XLE over all periods. However, it carries a higher level of risk, as evidenced by its higher volatility.
    • XOM's risk-adjusted performance, as measured by the Sharpe ratio, has generally been better than XLE's.
    • XOM's beta value below 1 suggests that it is less sensitive to market movements than XLE, making it a potentially more stable investment during periods of market volatility.
    • Investors should consider XOM's higher risk and potential for volatility, but also its strong performance and better risk-adjusted returns.
Peers Price History(as of 2024-09-04)
Chevron Corp. (CVX)BP Plc (BP)
  • Performance Comparison:
    • XOM has consistently outperformed both CVX and BP over most of the analyzed periods, particularly in the past year. This suggests that XOM may be a more attractive investment for investors seeking higher returns.
    • However, it's important to note that BP has outperformed XOM over the past three years, indicating that BP's long-term performance has been stronger.
  • Risk and Return Analysis:
    • XOM has generally provided higher annualized returns than CVX and BP, but its annualized volatility has also been higher. This suggests that XOM may be a riskier investment than its peers, but it has the potential for higher returns.
    • XOM's maximum drawdown has been lower than that of CVX and BP, indicating that XOM has been more resilient to market downturns.
  • Risk-Adjusted Performance:
    • XOM's Sharpe Ratio has generally been higher than that of CVX and BP, indicating that XOM has been offering a better risk-adjusted return. This suggests that XOM may be a more efficient investment than its peers, providing higher returns for a given level of risk.
    • XOM's beta values suggest that it is less volatile than the overall market, but more volatile than CVX. This indicates that XOM may be a slightly riskier investment than CVX, but less risky than BP.
  • Overall Assessment:
    • XOM has consistently outperformed its peers in terms of both absolute and risk-adjusted returns. However, it's important to consider that BP has outperformed XOM over the past three years, indicating that BP's long-term performance has been stronger.
    • XOM's higher volatility and slightly higher beta suggest that it may be a riskier investment than CVX, but less risky than BP.
    • Investors seeking higher returns with a slightly higher risk profile may find XOM to be an attractive investment. However, investors seeking a more conservative investment with a lower risk profile may prefer CVX.
    • It's important to note that the past performance of a stock is not necessarily indicative of its future performance. Investors should conduct their own due diligence and consider their own investment goals and risk tolerance before making any investment decisions.
Peers Fundamentals(as of 2024-06-30)
Chevron Corp. (CVX)BP Plc (BP)

  1. Market Position and Size:

    • XOM is the largest company in the peer group, with a market capitalization significantly larger than its competitors, indicating a strong market share and influence in the integrated oil industry.
    • XOM's market capitalization is positively correlated with its key financial metrics, suggesting that its size and market position are driven by its strong financial performance.

  2. Profitability and Efficiency:

    • XOM's profitability metrics are mixed compared to peers and industry averages. While it outperforms its peers in some areas, it underperforms the industry average, indicating potential areas for improvement in cost management and efficiency.
    • XOM's return on capital metrics are generally higher than its peers but lower than the industry average, suggesting that XOM may not be utilizing its assets and capital as effectively as its peers or the industry as a whole.

  3. Financial Health and Stability:

    • XOM's liquidity and solvency metrics are mixed compared to peers and industry averages. While it outperforms its peers in some areas, it underperforms the industry average, indicating potential areas for improvement in managing its short-term obligations and debt levels.
    • XOM's balance sheet structure is generally in line with industry norms, but its higher debt levels and lower cash reserves compared to some peers may indicate a more leveraged approach to financing its operations.

  4. Valuation and Market Perception:

    • XOM's valuation metrics are mixed compared to peers and industry averages. This suggests that the market may be valuing XOM at a discount to its peers or the industry as a whole, potentially due to concerns about its profitability, efficiency, or growth prospects.

  5. Cash Flow and Capital Management:

    • XOM's cash flow metrics are generally higher than its peers, considering their market caps. However, its cash flow generation strength is relatively lower than the industry average, suggesting that XOM may face challenges in converting its earnings into free cash flow.

  6. Growth and Future Prospects:

    • XOM's growth trends are mixed compared to the peer group average. It shows consistently higher growth in some areas, but consistently lower growth in others.
    • XOM's year-over-year growth rates exhibit significant fluctuations, suggesting that its growth may be volatile and subject to external factors or cyclical trends in the energy industry.
    • XOM's 3-year CAGR figures are generally higher than its 5-year CAGRs, indicating a potential acceleration in growth in recent years. However, this trend is not consistent across all metrics.

  7. Potential for Investment:

    • XOM's investment attractiveness is mixed. While it has a strong market position and generates significant cash flow, its profitability and efficiency metrics are lower than the industry average. Its higher debt levels compared to some peers also raise concerns about its financial stability. Investors may need to consider these factors carefully before making an investment decision.

  8. Key Risks and Considerations:

    • XOM's lower profitability and efficiency metrics compared to the industry average may hinder its ability to compete effectively in the long term.
    • XOM's higher debt levels compared to some peers may indicate a more leveraged approach to financing its operations and potentially higher financial risk.
    • XOM's volatile growth rates may indicate that its growth is subject to external factors or cyclical trends in the energy industry.

  9. Overall Assessment:

    • XOM is a large and influential company in the integrated oil industry, with a strong market position and significant cash flow generation. However, its profitability and efficiency metrics are lower than the industry average, and its higher debt levels raise concerns about its financial stability. Investors may need to carefully consider these factors before making an investment decision.