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 premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 55.6% premium to its calculated fair value of $71.89. XOM did not earn any Stars in this section.
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:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
XOM earned one Star in this section for 2.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45% The company has paid a cash dividend to shareholders every year since 1882 and has increased its dividend payments for 41 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:
1. NPV MMA Diff.
2. Years to > MMA
The negative NPV MMA Diff. means that on a NPV basis the dividend earnings from an investment in XOM would be less than a similar amount invested in MMA earning a 20-year average rate of 3.75%. If XOM grows its dividend at 1.4% per year, it will never equal a MMA yielding an estimated 20-year average rate of 3.75%.
Peers: The company's peer group includes: BP plc (BP) with a 4.4% yield, Chevron Corp. (CVX) with a 3.8% yield and ConocoPhillips (COP) with a 2.1% yield.
Conclusion: XOM did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks XOM as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $75.96 before XOM's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 41 years of consecutive dividend increases. At that price the stock would yield 4.8%.
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 5.5%. This dividend growth rate is above the 1.4% used in this analysis, thus providing no margin of safety. XOM has a risk rating of 1.5 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 super-majors and has historically delivered higher returns on capital. In the past, XOM has enjoyed superior earnings and dividend growth and stability over the years, but is now struggling in this lower consumption era. The stock is trading above my calculated fair value of $71.89, but has strong dividend metrics, including its free cash flow payout at 32% (down from 37%), and Debt to Total Capital at 17%. I will be watching XOM for now after selling out of my XOM position.
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 CVX.
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