Exxon Plans For Long Haul

8/29/2011


  Recent Price
$74
  Dividend
$1.88
  Yield
2.6%
  P/E Ratio
10
  Shares (millions)
4,912
  Long-Term Debt as % of Capital
7%
  52-Week Price Range
$88.23 - $58.05

Exxon Mobil ($74; XOM) behaves like a buy-and-hold investor, hardened to withstand the market's daily gyrations. The company says it invests based on a time horizon measured in decades and spanning multiple business cycles. As rivals slashed exploration budgets during the last downturn, Exxon ramped up its spending.

Exxon, the largest U.S. oil firm, is also the most profitable: In each of the last five years, it has delivered higher returns on assets, investment, and equity than its five largest U.S. rivals.

In the June quarter, Exxon benefited from strong oil prices and improvement at its refining-and-marketing segment. However, Exxon's acquisition-fueled 10% production growth disappointed investors. The primary cause for concern — downtime for maintenance projects — appears temporary, suggesting production should pick up in the second half of the year. Exxon, yielding 2.6%, is a Focus List Buy and a Long-Term Buy.

Pedigree, production, profits

Exxon is one of just four U.S. nonfinancial companies with an AAA credit rating from Standard & Poor's. That financial stability gives Exxon the flexibility to invest during both upturns and downturns. Capital spending jumped 35%, topping $18 billion, in the first half of 2011. Exxon plans to invest $33 billion to $37 billion a year over the next several years.

In the next few years, new projects are expected to add 1.4 million barrels of oil and gas equivalent to its daily production, currently at 4.4 million barrels. Oil accounts for less than 55% of current production but should make up 80% of the new production.

Exxon's production has steadily shifted eastward, with Asia accounting for 33% of 2010 production versus 22% in 2006. But a series of recent developments has positioned Exxon to double U.S. production by 2020. In June, the company announced one of the largest oil discoveries made in the Gulf of Mexico in the past decade. In 2007, Exxon made an even bigger Gulf discovery, a field that could yield more than 1 billion barrels of oil. But the field's potential did not become public until Exxon sued offshore-drilling regulators earlier this month, hoping to reverse a 2009 decision not to extend Exxon's lease on the field. If Exxon loses in court, the oil will revert to the government.

In the past 14 months, Exxon has spent more than $37 billion to buy natural-gas assets in North America. Given the weakness in U.S. natural-gas prices, it might take several years to see the full benefit of those deals. But the company feels it can afford to be patient. Exxon sees energy demand rising 35% from 2005 to 2030, with gas demand rising even more.

Conclusion

Exxon shares typically command a premium to other integrated energy companies. But at just 10 times trailing earnings, 19% below its five-year average, Exxon currently trades roughly in line with its peers.

The company has raised its dividend in each of the last 28 years, and share buybacks have lowered Exxon's share count 19% in the past five years. 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
Jun '11
2.18
vs.
1.60
+ 36%
88.13
-
76.72
13 - 11
Mar '11
2.14
vs.
1.33
+ 26%
88.23
-
73.64
14 - 12
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
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
341.58
6.22
1.74
73.69
-
55.94
12 - 9
2009
275.56
3.98
1.66
82.73
-
61.86
21 - 16
2008
425.07
8.69
1.55
96.12
-
56.51
11 - 7
2007
358.60
7.28
1.37
95.27
-
69.02
13 - 9
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
89
75
87
69
73
26
56

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


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