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 discount to only 1.) above. The stock is trading at a 11.4% discount to its calculated fair value of $105.44. XOM earned a Star in this section since it is trading at a fair value.
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 31 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
XOM earned a Star in this section for its NPV MMA Diff. of the $929. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as XOM has. If XOM grows its dividend at 9.3% per year, it will take 5 years to equal a MMA yielding an estimated 20-year average rate of 3.68%.
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 4.7% yield, Chevron Corp. (CVX) with a 3.5% yield and ConocoPhillips (COP) with a 4.1% yield.
Conclusion: XOM earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks XOM as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $112.85 before XOM's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 31 years of consecutive dividend increases. At that price the stock would yield 2.2%.
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 7.5%. This dividend growth rate is below the 9.3% used in this analysis, thus providing a margin of safety. XOM has a risk rating of 1.50 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 supermajors and has delivered higher returns on capital. XOM has enjoyed superior earnings and dividend growth and stability over the years.
The company recently announced that it expects to start production at 10 major projects in 2014, which will add about 300,000 barrels per day of new capacity. These additions are the result of higher levels of capital spending through 2013. The increased capital spending has led to a rapid increase of XOM's Free Cash Flow payout (currently at 95%). The company's 2014 Capx is expected to be lower.
XOM should benefit from upstream growth opportunities in deepwater, LNG, onshore unconventional and ventures with state-owned companies (who now hold the majority of the world's remaining resources). The stock is trading below my calculated fair value of $105.44, as such I plan to continue accumulating shares with a close eye on its Free Cash Flow Payout.
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 was long in XOM (1.5% of my Dividend Growth Portfolio) and was long in COP, CVX. See a list of all my dividend growth holdings my income holdings here.
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Tags: [XOM] [BP] [CVX] [COP]
