Exxon Digs Deep For Black Gold

2/7/2011


  Recent Price
$84
  Dividend
$1.76
  Yield
2.1%
  P/E Ratio
13
  Shares (millions)
5,031
  Long-Term Debt as % of Capital
9%
  52-Week Price Range
$83.96 - $55.94

Exxon Mobil's ($84; XOM) Quadrix® scores, like the price of oil, have steadily advanced over the past year. The oil giant earns an Overall score of 96 — compared to just 51 in January 2010.

The shares rallied to their highest level since January 2009 after Exxon said it earned $1.85 excluding special items in the December quarter, up 46% and $0.22 above the consensus estimate. Profits from upstream operations advanced 29%, while the chemical business jumped 49% and the downstream unit reversed a loss in the year-earlier quarter. Results were boosted by higher total production, up 19%, and stronger realized oil prices, up 12% to an average of $81 per barrel. Revenue grew 17% to more than $105 billion, topping the consensus by about $6 billion.

Exxon stands to benefit from robust energy prices, rising energy demand in developing countries, and U.S. initiatives to pursue clean oil. The stock is a Focus List Buy and a Long-Term Buy.

Business breakdown

Energy demand for powering transportation is projected to grow 35% between 2005 and 2030. With this long-term outlook in mind, Exxon maintained its capital spending during the downturn. In 2010, spending on exploration and capital projects rose 19% to $32.23 billion. Exxon expects annual spending of at least $25 billion for the next several years. Of course, the spending doesn't always pay off. Drilling is risky business, and Exxon has now failed to find oil in three deepwater attempts off Brazil's coast.

Such problems are becoming more common as companies push into unconventional forms of energy and rely on unconventional strategies to extract it. Exxon is the majority stakeholder in a $15 billion liquefied natural-gas project in Papua New Guinea.

The company also made a huge bet on U.S. natural gas when it acquired XTO Energy last June for about $25 billion. Exxon's U.S. production of natural gas doubled in 2010, though prices remain weak. Exxon's upstream business (74% of 2010 earnings) depends increasingly on such regions as West Africa, Russia, and the Middle East.

The downstream unit (11%) continues to improve as refining margins rebound in the wake of the recession. Exxon's oil refineries and chemical business (15%) could give the stock a nice kicker as the economy gains strength.

Conclusion

Exxon, yielding 2.1%, has grown its dividend at an annualized rate of nearly 6% over the last 27 years. In 2010, Exxon returned more than $19 billion to shareholders through dividends and stock buybacks. Exxon plans to repurchase $5 billion in shares in the March quarter. Rising estimates from Wall Street analysts project per-share profits of $6.91 in 2011, up 11% on 18% higher revenue.

At 13 times trailing earnings, the shares trade at a discount to the average integrated oil and gas stock in the S&P 1500 Index. An annual report for Exxon Mobil Corp. is available at 5959 Las Colinas Blvd, Irving, TX, 75039; (800) 252-1800;
www.exxonmobil.com.

 

EXXON MOBIL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '10
1.85
vs.
1.27
+ 17%
73.69
-
61.80
13 - 11
Sep '10
1.44
vs.
0.98
+ 16%
62.99
-
55.94
12 - 11
Jun '10
1.60
vs.
0.81
+ 25%
70.00
-
56.92
16 - 13
Mar '10
1.33
vs.
0.92
+ 43%
70.60
-
63.56
18 - 16
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
383.2
6.22
1.74
73.69
-
55.94
12 - 9
2009
275.6
3.98
1.66
82.73
-
61.86
21 - 16
2008
425.1
8.69
1.55
96.12
-
56.51
11 - 7
2007
358.6
7.28
1.37
95.27
-
69.02
13 - 9
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
93
72
72
70
95
77

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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