Exxon Mobil (XOM) is the world's largest company by market capitalization, the #2 business in the Fortune 500 (for 2012, behind another oil company, Royal Dutch Shell (RDS.A)), and a giant in the oil and gas industry. When it comes to oil and gas, Exxon Mobil does just about everything and both their revenues and their profitability show this.
Exxon Mobil generated over $450 billion in revenues last year (which was down $14 billion from 2011), which is more than 10x that of Apple's, another giant in the world economy. More importantly, this was not "empty" revenue either, as this revenue created $64 billion in operating income, up over $6 billion from 2011; this is even more impressive knowing that revenue was down $14 billion from 2011.
Make no mistake about it: Exxon is a "man among boys." The $14 billion drop in revenue alone represents a figure that is greater than 95% of the companies in the stock market… and this is just a drop in the bucket for Exxon. These numbers even dwarf those of some of Exxon's major competition; while Exxon had over $450 billion in revenues last year, BP (BP) had around $370 billion and Chevron (CVX) had about $217 billion. Clearly Exxon (along with Royal Dutch Shell) is the behemoth in this group, and it shows when looking at the numbers.
Yet there is more to Exxon than just its size. Looking at Exxon's valuation, it is priced slightly under the industry at a P/E of just over 9 (the industry average is just over 10), meaning it may still be undervalued. Additionally, for those looking for income in the form of dividends, Exxon is a great choice, with a current dividend yield of 2.75%.
Continuing to Grow
Given all of these positives, it is easy to think that Exxon is content where it is. However, the company and its management still continue to focus on growing the business. Exxon is spending nearly $40 billion this year in capital spending alone, and has a goal to replace its reserves by 115%. Given the size of Exxon, this is quite impressive, and shows the skill with which it is able to run its business.
However, there are concerns moving forward for the company. One area of concern has to be long-term growth of the industry, given the widespread discussion and increasing popularity of alternative fuels. One reflection of this is the projected growth rate for the global oil and gas industry, which is projected to be less than 2% annually through 2040. Yet given the company's recent growth and planning for the future, Exxon will likely catch a disproportionate amount of this growth, which could mean billions in revenues.
Additionally, the company is looking to new and different areas for growth, besides just oil. One of the areas that Exxon sees as having large growth potential is natural and liquid gas, both of which have been a focus for Exxon over the last few years. In particular, Exxon has developed the largest gas field in the world, in Qatar, where production is still ramping up. Further, Exxon's (and the industry's) technology is allowing it to use unconventional sources to find and produce oil, including oil sands and shale oil fields.
Exxon's success and growth has involved more than just its upstream operations. Its refinery business is the world's largest, and its unit costs are below the industry average. This is good news for Exxon, as its downstream success leaves it well positioned to hedge against potential losses and downturns in the upstream business - a strong upstream and downstream business will allow Exxon to have strong earnings regardless of the economic cycle and the price of oil.
In 2012, Exxon's downstream operations generated about 27% of its earnings, but accounted for only about 5% of capital expenditures. This is because the downstream business is capital intensive only if new refineries are being put in place. Another piece of good news is that Exxon's refineries are geographically diverse, with 35% in the US, 30% in Europe, 20% in Asia and the remaining 15% spread in the rest of the world. This gives Exxon a hedge against geographic events and local markets, allowing production to occur nearly uninterrupted. With such diversity, size, and performance, Exxon's downstream operations add a key advantage to the company, and should help propel if forward in the coming years.
Time to Invest?
Overall, Exxon Mobil is a strong global business that is well poised for the future. While it is a massive company, it is continuing to look for and find ways to grow and beat its competition, while focusing on creating a global company. These factors make it a safe bet for the long-term, as it continues to build reserves, improve technology, and prepare for the future.
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