I haven’t looked at company since the end of 2015 and I decided it is a high time to make some update. IH of the year was very good for shareholders as price went up from around $75 to around $95 as oil price rebounded. Lately oil prices declined from around $53 to around $42 and so was XOM. What’s are the prospects for the future and is it a right time to buy XOM shares?

Well, no one knows what the oil price will be in the future, so it is hard to predict. What is easier is to look at XOM financial statements. Generally results are under pressure both as it comes to downstream and upstream.

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But comparing to Q1 negative trends were stabilized.

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If we assume that it is a bottom of cycle and company is to generate 4 * 1.7b earnings, then it is around 7b net profit, valuation is very demanding. But still I assume it is somewhere around bottom of business cycle.

Valuation on consensus:

P/E = 37, next year 20

EV/EBITDA = 11, next year 7.9 (it seems to be ok)

 

Although earnings are weak we can see that company still generates a lot of cash and distribute it to shareholders.

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Well, currently dividend yield is around 3.4%, which is not a bad result, but few months ago it was even above 4%. We should also note that payout ratio is above 100%, which is not sustainable in long term, which means that either results improve in next years or company might be forced to cut dividend (only if low oil prices will stay on this level for longer).

It is also interesting that although oil prices are low we can see that share price is around all-time highs. Quite strange and not understandable for me…

 

Summing up, I do not understand it why shares are around all-time highs with oil prices at around $45. I would like to buy shares, but I definitely expect a higher discount.

 

Disclosure – XOM no position