Inside Wall Street: ExxonMobil Is a Bargain of a Behemoth

Gene Marcial's Inside Wall StreetThe big blue chips, including the major oils, haven't been so hot in this turbulent market. So, investors looking to spot hidden bargain stocks will probably overlook ExxonMobil (XOM). One of the world's largest corporations and the largest publicly traded integrated oil company, ExxonMobil has been relegated to the out-of-favor bin, despite its solid balance sheet, 2009 revenues of some $300 billion and net income of $20 billion.

ExxonMobil's stock is trading at $60 a share -- just about where it was in March 2009 when the market plunged to its low. Crude oil prices also hit bottom around then at about $40 a barrel. Since that time, the S&P 500 has rebounded, just about doubling, and oil prices have shot up to $74. Not ExxonMobil – it's still languishing.

ExxonMobil Chairman and CEO Rex Tillerson expressed his own frustration and disbelief over the stock's poor performance in a Sept. 1 meeting with a small group of analysts who track the company.

That's starting to catch the eye of bargain-hunting investors, who believe ExxonMobil has become more attractive than ever. They figure the oils won't be in disfavor forever and that ExxonMobil would be the chief winner when the recovery takes hold and oil stocks come roaring back.

"Plenty of Upside Potential"

In general, Wall Street has stayed upbeat on the stock in spite of the huge ruckus over BP's oil spill in the Gulf of Mexico. Just one analyst urges selling ExxonMobil, while 12 others recommend a buy, and eight tag it a hold.

"ExxonMobil offers pretty good value, with its enormous assets, solid balance sheet, increasing profits, decent dividend yield of nearly 3% -- and depressed valuation that surely has plenty of upside potential," says Karl Mills, president of investment firm Jurika, Mills and Keifer, which has accumulated shares.

The stock, he notes, is out of favor as a result of the calamitous BP (BP) oil spill and consequent dimming outlook for drilling. But the globally diversified company is the industry's best-managed, particularly since its recent acquisition of XTO Energy, one of the largest natural gas companies.

"So, it's now a bigger company and more diversified than it was at the height of the financial crisis," says Mills. The stock is inexpensive, he adds, trading at a depressed price-earnings ratio of 9 based on his 2011 earnings forecast of $6.70 a share. In 2007, ExxonMobil traded at an average p-e of 11.4. For 2010, Mills expects the company to earn $5.80 a share.

A+ Quality Ranking from S&P

Analyst Paul Y. Cheng of Barclays Capital, one of the analysts who met recently with CEO Tillerson, came away impressed with the company's prospects. He reiterated his outperform rating. "We think the stock offers a compelling valuation for our long-term investors," says Cheng His 12-month price target for ExxonMobil is $81 a share, based on his earnings estimate of $5.60 a share for 2010 and $6.50 for 2011.

The prestige of ExxonMobil as a "quality" company has remained intact. It has "enjoyed a superior degree of earnings and dividend growth and stability," says Tina J. Vital, oil analyst at S&P, who rates ExxonMobil as a strong buy. (S&P gives ExxonMobil a "Quality Ranking of A+.) She says the company will benefit from growth opportunities in deepwater drilling and liquefied natural gas (LNG), as well as from ventures with state-owned oil companies.


ExxonMobil's advanced technology, she notes, permits project development in a timely and cost-efficient manner. Its upstream exploration and production operations should benefit from the company's long-lived resources, says Vital, while its downstream refining unit should benefit from its huge complex of refineries that offer feedstock and product flexibility.

Serving customers in more than 200 countries (the U.S. accounted for 30% of sales in 2009), ExxonMobil is, indeed, a global giant, maintaining the largest portfolio of proved reserves and production in North America. And it's the biggest net producer of oil and gas in Europe. In the world of refining, ExxonMobil believes it's also the largest operator.

For a super-behemoth in the oil patch, ExxonMobil has a humble valuation. To the bulls, that means the stock can move only higher from its depressed level.

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kmsbears

with the exception of the ex-broker, what do these comments have to do with ExxonMobil as an investment? That's what this article was about. Period.

September 09 2010 at 7:50 PM Report abuse rate up rate down Reply
1 reply to kmsbears's comment
mjkmat

When you invest in a company that is laying off it's people. Something is missing from the picture. They are investing in lng that is produced in other countries.Moving your investment out of the country. typical wall street. workers never hustle and hustlers never work!INVEST IN AMERICAN COMPANIES STAYING IN THE UNITED STATES!!

September 09 2010 at 9:02 PM Report abuse rate up rate down Reply
mjkmat

I am absolutely furious over this artical about ExxonMobil. People have been kept in the dark about this company. Yesterday September 8th, ExxonMobil layed off all it's delivery drivers in eastern Mass. and Rhode Island.There are tons more layoffs coming according to other employees. ExxonMobil also sold all it's stations in New England 2 Months ago, to Alliance Energy.The company offered a very cheap severance package and has told us our health insurance will be shut off on October 1st.All of the drivers have more than 3 years or more with the company. Exxon Mobil told us in a closed door meeting that the company did not want us and we should seek employment esle where.We were locked out September 9th..Alliance Energy also stated that they did not want the drivers either.Alliance Energy sub contracts all it's deliveries .Alliance Energy is in talks to also buy the terminals. How nice is that?From a company that depended on it drivers to deliver it's product to Stations all over New England, they kicked us right to the curb!! Most of us are about to go on unemployment. Thank you to company that could care less about it,s people. It's all about the money!!

September 09 2010 at 5:13 PM Report abuse +1 rate up rate down Reply
rskakandybroker

I was a stock broker 1981-1983, Clients wanted utility stocks "for the income". Exxon and Texaco were selling at prices that translated into a ten percent dividend. I simply asked my clients if they thought that Exxon could ever go out of business and they purchased shares. I sold non-rated municipal bonds on the Waterford in Juno Beach Florida. 13% coupon, selling for about 880 so... 15% Return, tax free. In six months the bonds were selling for 1200+. try that for a return. COMMISSIONS WERE LOW, BUT MY CLIENTS KNEW THAT i WAS HONEST AND I NOT BELIEVE IN CHEATING PEOPLE. I am not a broker now and glad that I missed all the new and exciting products of the last ten years. PS: I was in my twenties so I am still not 400 years old. bob

September 09 2010 at 2:12 PM Report abuse +3 rate up rate down Reply
M

you be dumb, stupid greedy and out of touch for life to still invest in an outdated oil and gas energy! move on to something better. how fast we forget about their oil spil in 89

September 09 2010 at 12:54 PM Report abuse rate up rate down Reply
kdocjjk123

In 2003 just before the start of the Iraq War Exxon-Mobil was selling at about $35 a share and by 2007 had doubled in price. What brillant management. They doubled the price and it only took over 4,000 dead military. Since stocks and mutual funds are held primarily by the super rich( in 2007 the richest 1% held held 38%, the next richest 9% held 42.9% and the other 90% of Americans 18.8%) the dead from the poorest 90% doubled the oil stock wealth of the richest 10% and the rich say they should not pay taxes on that hard won wealth.

September 09 2010 at 12:37 PM Report abuse -1 rate up rate down Reply
mac2jr

EXXON as a Quality Company, say it is NOT SO... The Alaska fiasco is still not over, the original court ordered fines and fees for the oil spill cleanup was NEVER PAID OFF, and the company FOUGHT the court order for years until finding another judge that reduced the OWED AMOUNT to nearly ZERO.... The people of Alaska should have DEMANDED that their Governors, including Sarah Palin, not only fined, BUT JAILED the President, VP, top managers, and the CEO of EXXON for this.

September 09 2010 at 9:27 AM Report abuse rate up rate down Reply
2 replies to mac2jr's comment
senor frog

go exxon !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

September 09 2010 at 12:26 PM Report abuse -1 rate up rate down Reply
senor frog

go bills !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

September 09 2010 at 12:26 PM Report abuse rate up rate down Reply