Exxon Mobil Corporation (XOM) is the largest oil company in the United States. With upstream and downstream operations around the world ranging from exploration and drilling to sale at the pump by the roadside, the company is capitalized at around $350 billion, double that of Chevron Corporaton (CVX).
XOM shares are currently trading around $74, and the mean 12 month price target from analysts researching the stock is $90.50 (22% upside potential). This stock is trading below its 50-day exponential moving average of $76.96 and its 200-day exponential moving average of $76.83. The shares have come back from a Fall rally as a broad based decline of energy stock prices over the last few weeks caused by concerns over the world’s economy have harmed sentiment in this sector.
The stock is now heading toward the 52-week low of $67.03, and is some way below its 52-week high of $88.23 set in the second quarter of the year.
Earnings per share for the last 12 months are $8.28, and these are expected to reach to $8.41 in its next fiscal year (ending Dec 2012). These numbers place the shares on a trailing price to earnings ratio of 8.92, and a forward multiple of 8.79. This trailing price to earnings ratio is below the sector average of 11.25, though above the trailing price to earnings ratios of the other big four: BP plc (BP) at 5.46, Chevron Corp (CVX) at 6.84, Total SA (TOT) at 6.63, and ConocoPhillips (COP) at 8.48.
One of the attractions of energy stocks for investors is the high level of dividends they pay. With last year’s dividend of $1.88, XOM currently yields 2.50%. The dividend, covered nearly 4.5 times by earnings, has been increased for 29 years straight. There is no reason to expect this pattern to be discontinued next year. Though this yield is the lowest of the five companies mentioned herein, only TOT’s dividend has a higher cover (5.14 x its earnings).
Current operating margin at XOM is 12.87%, and profit margin is 9.75%, with a return on assets of 10.83% and a return on equity of 26.85%. Return on equity is the highest of the five big oil companies discussed, whilst operating margin is around the average.
click to enlarge
Shareholders in XOM have fared better than the broader S&P 500 index, whilst approximately in line with those of COP. The stock appears to have strong support at around the $68 to $70 range, though tin the short term this level may be tested again. A third bounce from such a short-term dip should see a period of consolidation before moving forward again.
XOM is not plagued by the drilling and spillage problems that BP and CVX have found themselves mired in. Further, the joint operations that it has with other companies, such as the Rosneft deal to develop Artic and Black Sea resources could prove interesting, and profitable, in years to come.
Overall, I think that XOM provides an interesting play in the sector, and with its defensive qualities and strong dividend stream should be a component of a balanced equity portfolio. This said, however, with global economic growth stalling, the ride on the shares may be tainted with periods of weakness. I rate this stock a hold for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
