Company Description: Exxon Mobil Corp., formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these 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 discount to only 3.) above. The stock is trading at a 15.8% discount to its calculated fair value of $104.93. XOM earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
XOM earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. XOM earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1882 and has increased its dividend payments for 30 consecutive years.
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) or Treasury bond? 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:
- NPV MMA Diff.
- Years to > MMA
XOM earned a Star in this section for its NPV MMA Diff. of the $923. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as XOM has. If XOM grows its dividend at 8.2% per year, it will take 1 years to equal a MMA yielding an estimated 20-year average rate of 2.6%. XOM earned a check for the Key Metric 'Years to >MMA' since its 1 years is less than the 5 year target.
Memberships and Peers: XOM is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: BP plc (NYSE:BP) with a 4.5% yield, Chevron Corp. (NYSE:CVX) with a 3.2% yield and ConocoPhillips (NYSE:COP) with a 4.6% yield.
Conclusion: XOM earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks XOM as a 5-Star Very Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $111.68 before XOM's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 30 years of consecutive dividend increases. At that price the stock would yield 2.0%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 6.0%. This dividend growth rate is below the 8.2% used in this analysis, thus providing a margin of safety. XOM has a risk rating of 1.25 which classifies it as a Low risk stock.
With a relentless pursuit of efficiency via technology and operational improvement, XOM sets itself apart from other supermajors and has delivered higher returns on capital than its competitors. XOM has enjoyed superior earnings and dividend growth and stability. The company should benefit from upstream growth opportunities in deepwater, LNG, onshore unconventional and ventures with state-owned companies (who now hold the majority of the world's remaining resources).
This is a company I have watched for many years looking for an opportunity to purchase, but its historically low yield always kept me for buying. With its most recent dividend increase of 21%, XOM is yielding in the mid-2% range. The dividend increase along with strong financials has XOM trading well below my calculated fair value of $104.93. the stock is now on my short list to evaluate for a buy.
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 held no position in XOM (0.0% of my Dividend Growth Portfolio) and was long in COP, CVX. See a list of all my dividend growth holdings my income holdings here.