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Exxon Mobil: Why You Shouldn't Be Surprised By Its Recent Performance

Mar. 09, 2021 4:49 PM ETExxon Mobil Corporation (XOM) Stock43 Comments


  • Exxon Mobil nearly doubles from its lows in September of last year when I first covered the company.
  • Even though the share price might be running ahead of fundamentals, the long-term thesis behind the business is still in place.
  • Fundamentals could continue to surprise on the upside as business standing improves and macro tailwinds persist.

Source: exxonmobil.eu

It has been almost half a year since I laid out my investment thesis for Exxon Mobil (NYSE:XOM) in 'Exxon Mobil: A Textbook Example Of Mean Reversion'.

In my analysis I focused on the long-term mispricing faced by most of Oil & Gas majors and particularly XOM. At that time Exxon Mobil checked all the boxed for a classic example of a company that has been overlooked and oversold and due to experience a reversion to the mean in terms of performance.

While many people simply couldn't believe that XOM share price could deliver outstanding returns in the midst of the oil prices slump, raging pandemic and so exciting technological disruptions, here we are 6-months later and not only did XOM outperform the broad market, but the high flying tech sector as well.

For a number of months I kept on covering the opportunity behind the company and even took a more unconventional approach in comparing the performance of XOM to the stock that took its place in the Dow Jones Index - Salesforce (CRM).

Source: Seeking Alpha

It was almost unbelievable, how one of the struggling corporate dinosaurs such as Exxon could outperform one of the most 'future proof' and exciting tech companies out there, and yet here we are six months since I wrote my thought piece called - 'Exxon Mobil Vs. Salesforce - The Most Likely Scenario Ahead'.

As it often happens in markets, even the best companies could become too richly priced and even the worst ones could become too cheap.

Moreover, in the case of XOM and CRM these two businesses are far from being the worst and the best ones respectively, while their valuations at the time suggested that this should be the case.

True, there are

This article was written by

Vladimir Dimitrov, CFA profile picture

Vladimir Dimitrov, CFA is a former strategy consultant within the field of brand and intangible assets valuation. During his career in the City of London he has been working with some of the largest global brands within the technology, telecom and banking sectors. 

He graduated from the London School of Economics and is interested in finding reasonably priced businesses with sustainable long-term competitive advantages. 

Vladimir is the leader of the investing group The Roundabout Investor where he teaches the process of evaluating roundabout investments; defined by potential high capital return, growth in free cash flow, safe dividends and conservative capital allocation. He offers weekly investment ideas, a model portfolio, a watchlist, macro outlooks, and sector deep dives. Learn more.

Analyst’s Disclosure: I am/we are long CLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (43)

XRTrader profile picture
Great previous call. Good article.

I think oil will be at $80+ by summer. A travel and economic boom, fueled by the end of the pandemic (and pandemic fatigue) & paid for by record high US savings rates & easy money will push demand WAY above supply and create a huge market imbalance. To add to this, the recent Texas weather crazieness took refiners offline at a time they should have been prepping summer gas....

Everything is setting up for travelmageddon and oil surge. Long XOM. Long XLE. I think the price will overshoot to the upside for XOM, so I'm targeting $85/share by June.
Vladimir Dimitrov, CFA profile picture
@XRTrader Thanks! Keep in mind that oil prices are very hard to predict even if there is an increase in demand as political decisions on the supply side often play a bigger role. Keeping a long-term view is key here.
ArchRegionalism profile picture
@XRTrader I say buy some ear plugs. Why? Because XOM is a balloon ready to pop that will make ears bleed. I am not kidding read this.
@ArchRegionalism I would assume the “independent technology think tank” that conducted this research is about as independent and non-biased as a CNN “fact checker.” Tough to know what to believe these days.
Buyandhold 2012 profile picture
Exxon Mobil is up 58% in the past 6 months.

So happy that I've been a shareholder for 51 years.

Today I took my schnauzer to the bank to deposit my Exxon Mobil dividend check.
@Buyandhold 2012 For 51 years? So what does "2012" stand for if I may ask?
Buyandhold 2012 profile picture

The year I started making comments on Seeking Alpha.
Vladimir Dimitrov, CFA profile picture
@Buyandhold 2012 that's an admirably long holding period! Congrats!
3 non-commercial Guyana wells notwithstanding, excellent XOM proved it is unsurpassed in exploration, production, refining, marketing and distribution of precious petroleum. It will continue to recover as the world does with vaccines and live to drill another day.
pdtor profile picture
Even millenials need to heat and drive. If they do not remain in their hovels forever
I still believe there's a reasonably good chance that oil prices take off within the next year or so due to the lagging effects of deep cost cutting, industry-wide, as is know to happen during previous oil crashes. I certainly don't count on it, but I do believe the demand for hydrocarbons in developing countries has been significantly underestimated.
This is a recovery situation and should not be taken as a long-term bullish prognosis for the oil & gas sector. You can see the market hang on every utterance from OPEC + members, and the oil price nervously awaits the outcome of continued production cuts. The e&p sub-sector continues with its deep share-.price losses. Intensifying environmental regulation and technological efficiencies will in coming years steadily erode demand. O&g continues to decline as an input per dollar of GDP. And countries and companies will unleash production when they consider that they need to do do to realize some value for their reserves. The majors have been writing down the value of their reserves, one by one. Is that because they enjoy doing so? The challenge is to find the optimal moment to phase oneself out of the sector, perhaps keeping a small residual position in the best names. Clearly Buffett has confidence in CVX, at least for the time being.
@Sugar Charlie this will climb a wall of worry. I tend to agree that XOM and its peers may not be "wonderful businesses" as Charlie Munger commented two weeks ago, but that doesn't mean that XOM is a bad investment; it means that investors need to be careful over what price they are willing to pay. People who pile on during the top of the cycle will not be cushioned like the investors 30 years ago were.
Robert Shriver Barnes profile picture
@Sugar Charlie they're writing them down because of the conservatism rule in accounting:

Accounting conservatism is a principle that requires company accounts to be prepared with caution and high degrees of verification. All probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized.
Short term outperformance; long term underperformer like all other oil and gas stocks. These fossil fuel stocks might trade more like utilities in the future: very little share appreciation in exchange for high dividends.
Vladimir Dimitrov, CFA profile picture
@hamayhah So you think that the world can transition to a 100% on renewables, while CCS and hydrogen have no future at all?
@Vladimir Dimitrov, CFA Sure, CCS and hydrogen have a future. But seems like you assuming they will be profitable? And make lots of money? No guarantee of that! CCS especially seems to be expensive, with no benefit for investors.
Veritas1010 profile picture
There is no amount of “bend over” that the genuflecting giant could do to appease the totalitarian left.

Let them play along however as best as can be hoped for and then the enviro crew of higher purity can be distracted possibly as they’ll never be assuaged to the heinous wrong of a world elevated to unbelievable security, wealth, and opportunities on the simplest backs of oil & gas.
By maintaining the dividend, XOM management is showing that they understand the reason why the majority of shareholders invest in XOM in the first place.
Their focus on the dividend is also indicative of their will to protect as many jobs as they can by reducing the need for layoffs by retaining such shareholders.
The current dividend rate is the result of the share price dropping not increases while the pandemic was raging so XOM management is avoiding getting way too clever (alla BVB and Looney of RDS and BP fame) as the responses in the relative share price performance clearly shows it.
Shareholders have choice for where to invest and if to remain invested.
Clearly D. Wood and co. are very much aware of it while author apparently is not.
As an XOM shareholder, I'm surely glad that Mr. Wood is running XOM and author is not.
Dabub profile picture
@GreenPen1 I own two oil majors, XOM and CVX. The fact that they are dividend aristocrats in a boom and bust industry and express how important the dividend is every time they speak to investors and analysts is why I own them.
@Dabub Sadly XOM is not a dividend aristocrat, they didn't increase just maintained. One too many cycles I guess. Still, very reliable.
Dabub profile picture
@ThisIsMyName XOM is still a dividend aristocrat. 2020 dividend was higher than 2019. XOM, like CVX, have until the dividend payout in 4Q21 to raise the dividend to maintain the status and I'm sure they both will.
Marrk profile picture
Good article. Thanks.

Target share price for 2021?
At this point nothing surprises me.
You cannot surprise me. Everyday the news is one big clown circus.

Biden is going to do to oil what Obama did for gun sales.
I'm a bit confused about the 1.5 x sales. I'm not sure what he means by this ? I ran two charts, XOM the other of the price of oil. Its seems that if oil trades above 70....XOM will be much higher than the current price.
secorewb profile picture
If XOM gets north of $90 then the dividend yield is below 4%. The paid out dollars are the same, it just looks like a smaller or no problem.
Looking forward to XOM being a normal financially savvy company again.
craftbrewinfo profile picture
"That is why in my opinion shareholders, and management alike, should show solidarity and share the burden with employees and other stakeholders." No thank you. I'm still trying to decide if I want to hold or take the profits. I entered into a position in early January after they said they will protect the dividend. I would not consider XOM a core holding, but if they kept the dividend, I would strongly consider holding

Surely by now they've proven to you that keeping the Dividend is priority #1. They even suspended employee 401K matching yet kept the dividend.
@craftbrewinfo I suggest selling and invest in a non-cyclical business(es) that you really can delve into for the long haul. I'm not intending to come off as crass, but buying shares in XOM is a generational investment; anything else is just gambling, and those who speculate deserve the subpar returns they receive.
Buyandhold 2012 profile picture
I've never been surprised by Exxon Mobil's performance.

Because Exxon Mobil has a tiger in its tank.
kingRIG2.0 profile picture
Wait until earnings, oh it’s gonna be sweet
As a XOM shareholder I feel our best ally is Saudi Arabia. While XOM and most USA (and rest of the world) oil production has been focused on maximizing oil production supply, at least Saudi Arabia has been showing some thoughtfulness toward saving the supply vs demand balance. While USA frackers were driving the price of global oil down by overproduction, the Saudi's tried to reduce their amount of greed by dropping the price of oil. Then Covid came along and finished the job for them. Now oil prices are going up and XOM is benefitting. Not from what XOM does, but because of what the Saudis and OPEC are doing to control supply and increase the price of oil. At least someone in the oil industry has some global common sense.
@dinlow Totally agree with your comment but SA is doing something the US cant. If all of the producers in the States were to meet up and agree on a production cut to prop up the price the DOJ would be involved instantly.
Chart Rider profile picture
@dinlow The Saudi's dropped the price of oil in order to drive the U.S. fracking industry out of business.
@Chart Rider And now they are propping it up which helps the super majors with international exposure
Old Professor profile picture
How refreshing to read something besides a jeremiad on ExxonMobil.
It is mostly caused by buying US energy from those foreign countries that us our own money against us, at the expense of local jobs being energy self reliant
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