Exxon Mobil – the largest publicly traded oil and gas company. To briefly describe company three main divisions should be presented:

• Upstream (exploration, production)
• Downstream (refining)
• Chemical division

So company have exposure on oil prices (low oil prices = bad news), refining margin (low margin = bad news) and natural gas prices (bad for upstream, good for chemical division).

Diversification allows company to earn money in tough times. Let’s look on the 3Q 2015 results. Company earned $1.3b in upstream, $2.0 in downstream and $1.2 in chemical division. These numbers are not super high in comparison to market cap, but low oil prices should not last forever. Moreover I see a potential in M&A activities. Company is not so highly leveraged and oil prices are low for each player so I think that there might be some good opportunities to buy assets. In long term such acquisition should be value accretive for shareholders.

As it comes to financials (estimates):
Market cap ~ $318B
Net debt ~$30B
Payout ratio ~60% (can increase due to lower earnings)
ROE ~11% (should decline)
Beta = 1.00
Estimated growth rate (g) = 0.4% * 11% = 4.4%
+ dividend yield 3.8%

Estimated valuation ratios:
P/E = 16.2 (should rise)
EV/EBITDA = 9.2 (should rise)

Exxon Mobil is also one of The Dividend Aristocrats. Oil prices are low, but it is not the first time in history. Even in tough years company managed to increase yearly dividend and this is why I assume this trend should be continued.

Historically company was paying on average 2.5% dividend yield. In the last five years dividend yield was higher in September 2015, when share price collapsed due to sell-off on financial markets. Current 3.8% looks good for me. It is much more than S&P 500, and there is play on increasing oil prices.

Also from drawdown risk perspective current share price levels are acceptable. You can buy shares 25% cheaper than in mid-2014.

XOM drawdown risk

Potential negative factors:
• Lower oil prices
• Pressure on refining margins
• Ecological issues

After analyzing all pros and cons I am planning to buy some shares of Exxon Mobil, but the case is timing. Oil is quite weak lastly, so I guess there is a possibility that XOM share price will drop to around $73 – I think it will be my entry point. I will let you know.

Disclaimer XOM – no position (yet)