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Exxon Mobil Stock Gives Every Indication Of Being Fairly Valued

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GF Value
Jul 15, 2021
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The stock of Exxon Mobil (NYSE:XOM, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $59.53 per share and the market cap of $252 billion, Exxon Mobil stock is estimated to be fairly valued. GF Value for Exxon Mobil is shown in the chart below.


Because Exxon Mobil is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Exxon Mobil has a cash-to-debt ratio of 0.06, which ranks worse than 83% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Exxon Mobil’s financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Exxon Mobil over the past years:


It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Exxon Mobil has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $181 billion and loss of $4.47 a share. Its operating margin is -14.39%, which ranks worse than 71% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Exxon Mobil at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Exxon Mobil over the past years:


One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Exxon Mobil is -9.1%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth is -22.5%, which ranks worse than 75% of the companies in Oil & Gas industry.

One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Exxon Mobil’s ROIC is -6.37 while its WACC came in at 8.64. The historical ROIC vs WACC comparison of Exxon Mobil is shown below:


In short, the stock of Exxon Mobil (NYSE:XOM, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 75% of the companies in Oil & Gas industry. To learn more about Exxon Mobil stock, you can check out its 30-year Financials here.

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