ExxonMobil Presents Investors with Timely Opportunity

Buy-recommended ExxonMobil (XOM) stock is the only one of twenty-four large cap buy recommendations not trading above its 200-day stock price average and its McDep Ratio of 0.80 is at a desirable buy level. Though trading below the 200-day indicates a downtrend, it also indicates a lagging stock price that may have catch up potential. Similarly the attractiveness of the 0.8 McDep Ratio takes on greater significance considering that most of the many years we have been analyzing XOM stock or its predecessor it has had near the highest McDep valuation. For example, seven years ago at another low point in the stock market cycle, XOM had a 0.98 McDep Ratio, at the top of its peers.

We know of no reason why XOM stock price should be lagging. Some investors may be concerned about higher future taxes, but that would affect most companies and most investors. Some owners of XOM stock may be concerned about future growth for a company that is already large. When we look at growth per share adjusted for debt and distributions, we see that XOM continues to perform well. Finally, increasing natural gas exposure is also a plus for growth once we get past the next few weeks before winter weather starts alleviating the current supply/demand imbalance for the clean fuel. Forbes astutely picked up on the natural gas thrust in its August 24 feature, “Green Company of the Year: Exxon”.

ExxonMobil’s 25% concentration of value on “Rest of World” natural gas is the highest of the major companies with publicly traded enterprise value more than $100 billion. Debt is low whether measured by EV/Market Cap in Table 1 or Debt/Present Value. Low debt reassures nervous investors at the same time it presents strategic investors an opportunity to own more stock for the same amount of financial risk in higher debt companies. Long reserve life, 12.4 years adjusted compared to a median 10, supports a higher cash flow multiple and higher stock price in our analysis than in current market quotes.

Meanwhile, the oil price trend continues upward with the latest settlement prices for the average of futures for the next six years near $80 a barrel compared to the 40-week average of $71. In the face of acute short-term pressure on the price of near-month deliveries, natural gas for the next six years remains remarkably stable at $6.53 a million btu, just under the 40-week average of $6.79. Similarly, the ratio of oil price to natural gas price is at an extreme for the average of futures for the next twelve months at 15 times, but less so for the average of futures for the next 72 months, or six years, at 12 times.

Originally published on September 1, 2009.

Comments

[isaac the t...:]

Thanks, good info

Sep 23 11:55 AM

[jarco:]

Here lies the risks of technical verses fundamental analysis. Any way you slice it, XOM is wholly dependent upon oil they no longer own and/or control. That's the reason for copious buybacks and investment in domestic NG over the last 10-15 years. And it still will not feed the giants thirst.

There are too many other long range opportunities in the oil/gas patch.

Sep 23 04:47 PM

[geologist:]

ExxonMobil has a huge position in NG via LNG with the tankers and LNG trains in place to move the natural gas from the largest natural gas field in the world in Qatar. Do your d/d and you will see that price of oil has not in the past driven the price of Exxon. Wish i knew all the answers to Exxon, but its stock price doesnt move with crude prices. Very interesting article. Regards

Sep 23 09:33 PM