In my last post from August I was surprised, that oil is low and shares are high (read more). Well, maybe market was discounting something or was it just some anomaly? Let’s have a look how situation looks like now.

Well, first of all let’s have a look from long term perspective on XOM and some OIL ETF (as an alternative).

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We can see that XOM strongly outperforms. The reasons are as follows: XOM is paying dividends while ETF is paying in each futures series for rolling-over position, which is disastrous for investors when contango is huge. That is why I prefer XOM/CVX to any oil financial products (though keep in mind that in some scenarios, when oil is going up strongly leveraged ETFs can bring higher return).

So if we compare XOM with crude oil prices I would note that XOM is like 10-15% below all-time highs, while oil is $50, which compared to even $100-$120 from 2013-2014 is still significantly higher discount on oil price. This is the main reason for me being reluctant to buy shares. On the other hand keep in mind that company significantly decreased number of shares through buybacks!!

Let’s look from micro perspective on company. Here it should be recalled that company consists of three segments – upstream, downstream and chemicals. This is why above thinking (oil change = XOM change) is not fully true (depends also on refining margins etc.)

Financial situation is very safe:

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And company has a shareholder friendly policy. Nearly $370B returned to shareholders since the merger of Exxon and Mobil. A lot keeping in mind that current market cap is $330b and merger was at the end of 1999. Well company paid back itself (in current value) within less than 20 years. Not bad, isn’t it?

There is a lot of emphasize on cash flow generation in the presentation. That’s good, because more advanced slides are not understandable for me.

Well if we look on consensus company should generate around $50b EBITDA. It means EV/EBITDA around 8 times and P/E around 20. That’s neutral, but if I were to be I would say that oil price would rather go up 30% than down 30%…

Dividend yield is 3.7%, not bad nominally and from historical perspective:

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Summing up, after looking again at XOM is looks like a good long term opportunity. But truth to tell my understanding of business is quite weak and maybe it looks like OK currently, because everything else is so expensive…

 

Disclosure – XOM no position