Exxon Mobil: An Unwise Investment For Now

Exxon Mobil Corp (XOM) (alt.1, alt.2)

Below are some highlights from the above linked analysis:

Company Description: Exxon Mobil Corp. is engaged in the exploration, production, and sale of crude oil, natural gas, petroleum products and petrochemicals. XOM is the world's largest publicly owned integrated oil company.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

XOM is trading at a premium to all except 2.) above. If I exclude the high and low valuation, and average the remaining two valuations, XOM is trading at a 19.8% premium. A Star is deducted since XOM is trading at such a large premium.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of avg.

XOM earned two Stars in this section for 3.) and 4.) above. It has paid a cash dividend to shareholders every year since 1882 and has increased its quarterly cash dividend payments for 26 consecutive years. The 1-Yr. > 5-Yr Growth metric indicates that dividend growth has been accelerating.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account [MMA]? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to >MMA.

XOM earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. In effect, if you invested equal amounts in a MMA earning of an average of 4.61% for 20 years and XOM stock with a dividend yield of 1.81% and growing at 6.4% annually, you would end up with $3,288 less in XOM stock per $1,000 invested.

Other: XOM is a member of the S&P 500, is an Achiever and an Aristocrat. XOM is a strong player in the volatile, cyclical and capital-intensive energy sector. XOM is one of the few companies with sufficient resources to pursue deepwater, liquefied natural gas [LNG].

Conclusion: XOM lost a Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and lost a Star in the Dividend Income vs. MMA section for a net total of 0 Stars. This rates XOM as a 0 Star-Avoid stock.

Cutting to the chase, XOM is overvalued and not currently a good dividend investment. Using my D4L-PreScreen.xls model, I determined the dividend growth rate would have to average 15.1% for XOM to generate a $3,000 NPV of MMA Differential that I look for from a company that is both an Achiever and an Aristocrat. That is more than double the 6.4% historical number.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I do not own shares of XOM (0.0% of my Income Portfolio).

Comments

[DaveinHacke...:]

"Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account [MMA]?"

Because of the potential for capital appreciation, of course. Also, dividends aren't the only way XOM returns capital to shareholders. XOM also buys back a significant amount of shares.

2008 Jul 08 09:02 AM

[VSD:]

Finally, someone realizes that oil stocks are all service stocks. XOM does not have a factory where is makes oil, it extracts oil and sells.

2008 Jul 08 10:55 AM

[ajhough:]

I have owned XOM since 1984 and have added my dividends plus splits and capital gains and found I made far more that I could have in MMA. If fact, XOM has proven to be my best investment over the period of twenty-five years. I last added to my XOM holdings in 2002. The stock has doubled and the dividend has grown better than ten per cent per year. I wouldn't add to it at these times and prices, however.

2008 Jul 08 11:18 AM

[john s. gordon:]

i sold all my XON stock after they refused to act in a responsible manner after the exxon valdez mess.
> jack

2008 Jul 09 08:37 AM

[Mmarrkk:]

Jack: I guess spending over $3 billion cleaning up the mess wasn't enough? Or, do you disagree with a company utilizing its constitutional right to appeal a punitive damage award which is not even tied to reality? The courts agreed with Exxon; the award was not constitutional. But I guess the courts weren't designed for Exxon?

2008 Jul 09 10:02 AM

[Laundry:]

I found that these so called experts are no better then a coin toss. XOM has been great stock for over 30 years and the worlds demand for oil is not going away(If your thinking GM). Buy on every dip and wait. Do your own research will free goverment information on the web. XOM is safe bet with a great return.

2008 Jul 09 10:18 AM

[john s. gordon:]

mmarrkk - XON could have used some of its infinitely large cash hoard to compensate the local residents who had their lives ruined, but chose to spend the $ on 19 years worth of high priced lawyers instead. many of the persons on the losing end of this business are dead now. courts are packed with reagan/bush appointees, what kind of verdict would you expect in that situation?
> jack

2008 Jul 09 11:01 AM

[Philip Obal:]

There are some large share holders of XOM who think that XOM should be more aggressive in growth. In comparison to other majors during the last 12 months, XOM share price has lagged behind. XOM has touched 95 three times, but just retreats back to 85.

I agree that XOM is undervalued... not overvalued. Management needs to be more aggressive in large oil field finds for sure!

2008 Jul 09 12:28 PM

[doylegroup:]

I too am a long term holder of XOM. My current yield with stock splits & reinvested div's is over 9%. Last I checked MM wasn't even close.

2008 Jul 09 03:04 PM

[Mary08:]

Everyone go out there and check any other market cap against ExxonMobil.
ExxonMobil Market Cap 445.47B ...Solid.

Have you seen what this MegaCorp is into?

Sarnoff To Commercialize ExxonMobil's Nano Materials In Non-Petrochemical Markets
www.azonano.com/news.a...
..............

"...Most prototype hydrogen vehicles on the road today are powered by highly-compressed or liquefied hydrogen that is delivered to distribution points and then stored at high pressures on-board the vehicle. For these vehicles to be widely adopted a significant hydrogen generation and delivery infrastructure must be developed.

As the ExxonMobil system uses conventional fuels and produces hydrogen on demand, no such infrastructure or on-board storage would be necessary...."

www.bgu.ac.il/indcat/h...
...............

Sarnoff Enters Into Multi-Year Agreement with ExxonMobil to Develop Company’s Nanomaterials for Non-Petrochemical Markets
www.nsti.org/news/item...
...............

ExxonMobil technology developments
www.exxonmobil.com/app...
...............

Symyx Reels In Big ExxonMobil Contract
In a huge deal, high-throughput experimentation specialist Symyx Technologies has inked a five-year alliance with ExxonMobil worth more than $200 million.
pubs.acs.org/cen/topst...
................

This is the second year that ExxonMobil has participated in Idol Gives Back, which raised over $76 million for charity in its first year in 2007. During that program, ExxonMobil provided a $3-million “challenge grant” that matched donations by viewers to Malaria No More.

ExxonMobil has donated more than $121 million to organizations working in and benefiting Africa that are engaged in important community and social development projects, including $40 million through ExxonMobil Foundation’s Africa Health Initiative.
growthstockanalyst.com...

2008 Jul 10 01:10 AM

[User 225225:]

XOM is more involved than you think in the future of energy. Just because they don't parade it around and trounce into every alt-en trend like BP and Shell half-heartedly do doesnt mean this giant isnt looking at the future.

If you think the other majors are making a big jump into alt-en, look at the numbers in their finances. ITS TINY, just a PR campaign so liberal america will buy their products instead of big-bad exxon, who make everyone's gas prices higher by making the most money per gallon, and getting the best ROI of any chem or Int-oil.

Well thats not a very financially minded comment...

2008 Jul 11 07:23 PM

[ninetyseven:]

During the clean up effort XOM hired any willing local person to put their boat and equipment into service at rates of a thousand dollars a day or more. They hired local clean up people at $17/hr and up-- very high pay at the time for their efforts.

Fishermen that were affected by the oil spill were given a chance to be compensated the equivalent of 10 times their average yearly income for the highest 3 years in the prior decade to the spill. So every fisherman that was affected was paid 10 times what they were making unless they opted to seek higher compensation than that at a later date. Seems like a pretty fair deal to me.

Exxon made millionaires of a lot of people there. They were fairly compensated, or had a chance to have been fairly compensated. Cordovans called themselves spillionaires.

In 1989 Exxon paid 300 million to fishermen and in 1994 they paid an additional 287 million. Clean up and related costs were about 3 billion dollars.

2008 Jul 12 05:25 AM

[Mullyden:]

XOM has acted responsibly for Valdez. They did a terrible PR job initally and the entire industry learned from it. XOM paid for cleanup and all losses. To hear plaintiff attorneys say people were not compensated for pain and suffering is BS. The pain and suffering is caused by pumping up folks by lawyers who believe me were compensated for their P&S. You can't predict a what a single jackass can do. There is a no win here. XOM now has policies to ensure "critical positions" can't be held by those with booze problems. Now you have another bunch of lawyers going to court saying people can be rehab'd. Its the same lawyers that would go back and to a class action when the rehab'd person relapses. There was no basis for the punitive damages of $billions.

2008 Jul 18 06:48 PM

[Dividend Gr...:]

I think that XOM is a good buy on dips below $80..

www.tickerspy.com/go.p...

2008 Jul 21 08:35 PM