Company Description: Exxon Mobil Corp. (XOM), 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. The stock is trading at a 23.5% premium to its calculated fair value of $66.94. 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 two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. 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 29 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 4.1%. If XOM grows its dividend at 5.6% per year, it will never equal a MMA yielding an estimated 20-year average rate of 4.1%.
Memberships and Peers: XOM is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: BP plc (BP) with a 3.8% yield, Chevron Corp. (CVX) with a 2.9% yield and ConocoPhillips (COP) with a 3.5% yield.
Conclusion: XOM did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks XOM as a 2 Star-Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $51.49 before XOM's NPV MMA Differential decreased to the $600 minimum that I look for in a stock with 29 years of consecutive dividend increases. At that price the stock would yield 3.59%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $600 NPV MMA Differential, the calculated rate is 10.2%. This dividend growth rate is well above the 5.6% used in this analysis, thus providing no margin of safety. XOM has a risk rating of 1.50 which classifies it as a Low risk stock.
Through a relentless pursuit of efficiency through technology and operational improvement, XOM has sets itself apart among the other supermajors and has delivered higher returns on capital than its competitors. XOM has enjoyed superior earnings and dividend growth and stability. The company should benefit from upstream growth opportunities in deepwater, LNG, onshore unconventional and ventures with state-owned companies.
This is a company I have watched for many years looking for an opportunity to buy. Unfortunately, its dividend yield and dividend growth are too low to make the numbers work, as evidenced by the 23% premium it is trading to my calculated fair value price of $66.94. For now, I will remain on the sidelines.
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 Income Portfolio) and was long in CVX and COP. See a list of all my dividend growth holdings here.
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