Monday, July 7, 2008

* Stock Analysis: Exxon Mobil Corp (XOM)

Linked here is a PDF copy of my analysis of Exxon Mobil Corp (XOM) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: Exxon Mobil Corp. (XOM) 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).

What are your thoughts on XOM?

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