Report Contents
I. Executive Summary…………………………………………………………….…...…2
II. Company overview…………….…………………………………………..….…...…..2
1. Introduction …………….………………………………………..…………...…………….2
2. Business Activities .………………………..…………..……………..….……..…. 2
III. Industry Analysis ……………………………………………………….……………3
1. Projections of Economic Activity ………………………………………………….………3
2. Oil and Gas Industry Overview ………………………………………………..….......5
3. Industry Trend Analysis ………...……….……………………….…..….................6
4. SWOT Analysis .…………………………………………………..……...…...........8
VI. Fundamental Analysis .…………………………………………………...................10
1. Ratio analysis ……….…………………………………………..…........................11
2. Risk factors …………...……………………………………………………...........25
3. Earning Forecast…………….……………………………………..….....................26
V. Relative valuation ………...………………………………………...…......................30
VI. Absolute valuation ………..…………………………………….....….......................32
VII. Retrospective Analysis …..………………………………………..….....................35
VIII. Recommendation …………………………………………..…...............................36
IX. Bibliography ……..……………………………………..….......................................37
Page 1
I. Executive Summary
After analyzing ExxonMobil and its position within the overall oil and gas industry, we
find sufficient support to believe that this company is a worthwhile investment and thus
recommend it as an addition to the St. John’s University Graduate Student Managed
Investment Fund portfolio.
This decision is based upon: the strength of the company in comparison to its peers and
the oil and gas industry as a whole through ratio analysis, relative valuation, absolute
valuation, analysis of the economy and current happenings within the company, and the
analysis of future trends.
This report will serve to support our recommendation to purchase shares of ExxonMobil
as it is currently a viable option and will be a fruitful investment in the future.
II. Company Overview
1. Introduction
The ExxonMobil Corporation is an American multinational oil and gas corporation. It
was formed on November 30, 1999, by the merger of Exxon and Mobil. Its headquarters
are in Irving, Texas. ExxonMobil is one of the largest publicly traded companies in the
world, having been ranked either number 1 or number 2 for the past 5 years.
ExxonMobil Corporation is a manufacturer and marketer of commodity petrochemicals,
including olefins, aromatics, polyethylene and polypropylene plastics and a range of
specialty products. It also has interests in electric power generation facilities. The
Company has several divisions and hundreds of affiliates with names that include
ExxonMobil, Exxon, Esso or Mobil. Divisions and affiliated companies of ExxonMobil
operate or market products in the United States and other countries of the world. Their
principal business is energy, involving exploration for, and production of, crude oil and
natural gas, manufacture of petroleum products and transportation and sale of crude oil,
natural gas and petroleum products.
2. Business Activities
May 25, 2010, ExxonMobil Outlines Achievements in Environmental, Safety, Economic
& Social Performance.
June 07, 2010, Technology, Strong Partnerships Key to Meeting Future Energy Demand
Growth, Albers Says.
June 25, 2010, ExxonMobil Announces Completion of All-Stock Transaction For XTO.
following approval by the stockholders of XTO Energy Inc. (XTO), ExxonMobil
acquired XTO by merging a wholly-owned subsidiary of ExxonMobil with and into XTO
Page 2
(the merger), with XTO continuing as the surviving corporation and wholly-owned
subsidiary of ExxonMobil.
July 14, 2010, ExxonMobil and Synthetic Genomics Inc. Advance Algae Biofuels
Program with New Greenhouse.
July 21, 2010, New Oil Spill Containment System to Protect Gulf of Mexico Planned By
Major Oil Companies.
July 27, 2010, XTO Energy Inc. Announces Purchase of $2.048 Billion Principal Amount
of Its Debt Securities.
December 1, 2010, ExxonMobil is planning to increase capacity by 10% at its
hydrocarbon fluids plant in Antwerp, Belgium.
December 6, 2010, ExxonMobil Corporation joined hands with PT Pertamina to develop
the offshore East Natuna natural gas block in Indonesia.
III. Industry Analysis
Reference case refers to a series of historical and projection data in the appendix of Annual
Energy Outlook 2010 from Energy Information Administration.
1. Projections of Economic Activity
Real gross domestic product returns to its pre-recession level by 2011 1
The rate of growth in real GDP depends on assumptions about labor force growth and
productivity. GDP growth is considerably slower in the near term as a result of the recent
recession. The U.S. economy has seen 10 recessions since 1947. The 2007-2009
recession is projected to be the longest, with four consecutive quarters of negative
growth, and also the deepest since 1957. EIA assumes that economic recovery accelerates
in 2011, while employment recovers more slowly. Real GDP returns to its prerecessionary level by 2011, but unemployment rates do not return to pre-recessionary
levels until 2019.
1
U.S. Energy Information Administration, Annual Energy Outlook 2010 with Projections to 2035, DOE/EIA-0383(2010),
May 11, 2010
Page 3
Source: AEO2010 National Energy Modeling System runs AEO2010R.D111809A, HM2010.D020310A, and
LM2010.D011110A.
Inflation, interest rates remain low, unemployment exceeds 6 percent 2
In the Reference case, annual consumer price inflation averages 2.2 percent, the annual
yield on the 10-year Treasury note averages 5.4 percent and the average unemployment
rate is 6.3 percent. In the first 2 years of the Reference case projection, as the economy
slowly recovers from the recession that began at the end of 2007, inflation and interest
rates are below their 27-year projected averages of 2.2 and 5.4 percent, respectively, and
unemployment rates are above their long-term average of 6.3 percent. The recession
reduces household wealth, and unemployment remains high as people take longer than in
past recessions to find employment. The unemployment rate returns to its 2007 rate of 5.8
percent in 2019. Annual gains in labor productivity average 2.0 percent, underpinning the
projections for inflation and interest rates.
Energy prices for U.S. consumers grow by 2.4 percent per year from 2008 to 2035 in the
Reference case, compared with 2.2-percent annual growth in overall consumer prices. For
energy commodities, annual price increases average 2.5 percent per year.
2
U.S. Energy Information Administration, Annual Energy Outlook 2010 with Projections to 2035, DOE/EIA-0383(2010),
May 11, 2010
Page 4
Source: AEO2010 National Energy Modeling System, runs AEO2010R.D111809A, HM2010.D020310A, and LM2010.
D011110A.
2. Oil and Gas Industry Overview
There is no doubt that the oil/energy industry is extremely large. According to
the Department of Energy (DOE), fossil fuels, including coal, oil and natural gas, make
up more than 85% of the energy consumed in the U.S. Oil supplies 40% of U.S. energy
needs as of 2008.
There are two major sectors within the oil industry, upstream and downstream. Upstream
is the process of extracting the oil and refining it. Downstream is the commercial side of
the business, such as gas stations or the delivery of oil for heat.
The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental
organization dedicated to the stability and prosperity of the petroleum market. OPEC
membership is open to any country that is a substantial exporter of oil and that shares the
ideals of the organization. OPEC has 11 member countries. Output quotas placed by
OPEC can send huge shocks throughout the energy markets.
Page 5
Below is a chart of the world's top exporters of petroleum. (OPEC members are denoted
by “*”)
Top World Oil Net Exporters, 2008 (thousand barrels per day)
Rank
Country
Exports
1
Saudi Arabia*
8,030
2
Russia
7,017
3
United Arab Emirates*
2,475
4
Iran*
2,342
5
Norway
2,338
6
Kuwait*
2,288
7
Nigeria*
2,062
8
Venezuela*
1,957
9
Algeria*
1,905
10
Angola*
1,709
11
Libya*
1,575
12
Iraq*
1,524
Source: U.S. Energy Information Administration
3. Industry Trend Analysis 3
Global Crude Oil and Liquid Fuels Overview: “Gradual tightening in global oil
markets continues to support world oil prices. Projected liquid fuels consumption growth
of 2 million barrels per day (bbl/d) in 2010 is almost double the growth in supply from
countries outside of the Organization of the Petroleum Exporting Countries (OPEC),
which has led to rising demand for OPEC crude oil production and declining global oil
inventories. While overall commercial oil inventories in the Organization for Economic
Cooperation and Development (OECD) countries remain high, stock levels are unevenly
distributed with some regions experiencing tightness in recent months.”
Global Crude Oil and Liquid Fuels Consumption: “Projected world liquid fuels
consumption increases by 2 million bbl/d in 2010, following declines in 2008 and
2009. As a result, total global consumption in 2010 should be close to the 2007
level. Global oil consumption growth slows to 1.4 million bbl/d in 2011. Non-OECD
3
U.S. Energy Information Administration, “Short-Term Energy Outlook”, December 7, 2010
Page 6
regions, especially China, the Middle East, and Brazil, represent most of the expected
growth in world oil consumption next year.”
U.S. Liquid Fuels Consumption: “Projected total U.S. liquid fuels consumption
increases by 320,000 bbl/d (1.7 percent) to 19.09 million bbl/d in 2010, which is about
60,000 bbl/d higher than forecast in last month's Outlook. A year-over-year decline in
total liquid fuels consumption averaging 40,000 bbl/d in the first quarter of 2010 was
followed by a year-over-year rise averaging 610,000 bbl/d in the second and third
quarters led by increases in motor gasoline and distillate fuel oil consumption. During
2010 as a whole, projected gasoline consumption increases by 0.4 percent and distillate
consumption increases by 4.0 percent. Total liquid fuels consumption increases by a
further 160,000 bbl/d (0.8 percent) in 2011, as all of the major petroleum products
register consumption growth. Gasoline consumption grows by 0.8 percent, and distillate
fuel consumption increases by 1.7 percent in 2011.”
Source: Short Term Energy Outlook, December 2010
U.S. Petroleum Product Prices: A projected regular-grade gasoline retail price rose
from an average of $2.35 per gallon in 2009 to an average of $2.77 per gallon in 2010,
and is expected to rise to $3.00 per gallon in 2011. On-highway diesel fuel retail prices,
which averaged $2.46 per gallon in 2009, average $2.98 per gallon in 2010 and $3.23 in
2011 in the current forecast. Refining margins, which had been at their lowest levels
since 2003, are expected to an average about $2 per barrel higher next year because of
growing global product demand.
Page 7
Source: U.S. Energy Information Administration, “Short-Term Energy Outlook – Real Energy Price”, December 7,
2010
4. SWOT Analysis
A. Strengths
Leading market position -- ExxonMobil is the world’s largest publicly traded integrated
petroleum and natural gas company with market capitalization of $360.34Billion as of
Dec 07, 2010. ExxonMobil has interests in 37 refineries located in 21 countries and
markets its products through more than 29,000 retail service stations. In 2008, refinery
throughput averaged 5.4 million barrels per day, and petroleum product sales were 6.8
million barrels per day4. ExxonMobil is the leading global supplier of lube based stock
and marketing finished lubricants, asphalt, and specialty products.
Diversified revenue stream -- ExxonMobil has wide presence across various regions.
The company’s revenue stream is diversified in terms of geography. ExxonMobil divides
its geographic divisions as US and non-US. The non-US region covers the countries of
Japan, Canada, the UK, Germany, Belgium, Germany, Italy, Singapore, and France.
4
XOM 8-K filed Mar 11, 2009
Page 8
Geographic Sales and other operating revenue in 2009
(in billions)
Non-U.S.
211.653
Significant non-U.S. revenue
% of revenue
sources include:
Japan
22.054
10.42%
Canada
21.151
9.99%
United Kingdom
20.293
9.59%
Belgium
16.857
7.96%
Germany
14.839
7.01%
Italy
12.997
6.14%
France
12.042
5.69%
Singapore
8.4
3.97%
Total
Source: XOM 10-K, 2010.
60.78%
Steady financial performance -- ExxonMobil has delivered consistent financial results.
The total revenues of the company have increased during FY2002-FY2008 from
$178.909 billion in FY2002 to $345.289 billion in FY2010, excluding 2009 when the oil
demand significantly decreased.
Total Revenue
(in billions)
ExxonMobil
2002
178.909
2003
213.199
2004
263.989
2005
328.213
2006
335.086
2007
358.600
2008
425.071
2009
275.564
B. Weakness
Legal proceedings -- ExxonMobil is involved in many legal proceedings. In October
2008, the company was fined by the European Commission along with eight other
petrochemical companies for price fixing of paraffin wax. ExxonMobil was fined E83.6
million (approximately $123 million). In June 2008, ExxonMobil was sued by the
attorney of San Francisco. The company faced an allegation that it failed to clean up
hazardous pollutants from a fueling depot at Fisherman's Wharf. Mobil Oil operated a
fueling facility at Fisherman's Wharf between 1938 and 1992. The suit alleges that
ExxonMobil's neglect has contaminated the soil, groundwater, tidal water, and sediment
of San Francisco Bay. The suit demands that Exxon clean the site and pay the damages.
In another incident, a resident of Linden, NJ claimed to contract a rare form of stomach
cancer as a result of conditions at the Bay way Refinery in Linden. This refinery was
formerly owned by ExxonMobil. The jury found ExxonMobil responsible for the cancer
called ‘peritoneal mesothelioma.’ The company paid $7.5 million as damages. Such cases
result in huge penalties and can have adverse effects on the company’s profitability. 5
5
http://www.baseoilreport.com/20102211/conocophillips-resumed-crude-oil-processing-and-started-all-downstreamprocess-units-its-ba
Page 9
2010
345.289
Declining production in the US -- The upstream division in the US has recorded a
consistent decline in its production volumes. The crude oil and natural gas liquid
production volumes in the region have been declining since FY2004. Upstream applies to
the operation of exploration, drilling, hydrocarbon production, and transmission via truck,
rail or ship or pipe line to the refinery intake valve. Downstream includes all work done
at the refinery, distillation, cracking, reforming, blending storage, mixing and shipping.
The net liquid production has declined at a CAGR of 10% from 557,000 barrels per day
in FY2004 to 367,000 barrels per day in FY2008. The company recorded a 6.4% decline
in its net liquid production in FY2008 compared with FY2007.
A similar trend is noticed in the natural gas production volumes. The natural gas
production has declined at a CAGR of 11% from 1,947,000 barrels per day in FY2004 to
1,246,000 barrels per day in FY2008.The company recorded a 15.1% decline in its
natural gas production in FY2008 compared with FY2007. Unless they discover other
reserves and establish production in foreign markets, a continuation of this trend is likely
to have an adverse impact on the company's revenue growth rates.
C. Opportunities
Increasing demand for refined products in Asia -- Over the next 10 years, the
company expects about 60% percent of the world’s petrochemical demand growth to
occur in Asia, with more than one-third in China alone.
To capture the rising demand, the company has been making investments in Asia and the
Middle East in projects in with long-term competitive advantages, including integration
with other operations, advantaged feedstock, proprietary process and product technology,
and market access.
ExxonMobil is currently working on an integrated refining and petrochemical facility
located in Quanzhou, China. This project includes 800,000 tons per year ethylene steam
cracker and integrated polyethylene, polypropylene, and propylene units. The company is
building a world-scale petrochemical complex at its integrated refining and chemical
facility in Singapore.
Capital investments -- ExxonMobil plans to invest between $25 billion and $30 billion
annually over the next five years to deliver major projects to meet growing world energy
demand. The demand for global energy is expected to increase approximately 35% from
2005 to 2030. These investments aim to develop new technology, bring on new upstream
projects, increase the company’s base refining capacity, and grow its chemical business.
These investments also reinforce ExxonMobil’s position as an industry leader in bringing
new supplies to the market.
D. Threats
Economic slowdown in the US and the European Union -- The demand for energy and
petrochemicals correlates closely with general economic growth rates. The occurrence of
Page 10
recessions or other periods of low or negative economic growth will typically have a
direct adverse impact on their results. For example, from 2008 to 2009, the revenues of
both industry and company decreased by more than 35%, indicating that the oil industry
is quite sensitive to the economic environment. Other factors that affect general economic
conditions in the world or in a major region, such as changes in population growth rates
or periods of civil unrest, also impact the demand for energy and petrochemicals.
Economic conditions that impair the functioning of financial markets and institutions also
pose risks to ExxonMobil, including risks to the safety of their financial assets and to the
ability of their partners and customers to fulfill their commitments to ExxonMobil.
Risks associated with conducting business outside the US -- The company operates in
more than 200 countries under the names ExxonMobil, Exxon, Esso, and Mobil. The
non-US countries accounted for more than 70.2% of the total revenues of the company in
the FY2009. In these foreign locations, the company might experience fluctuations in
exchange rates, complex regulatory requirements, and restrictions on its ability to
repatriate investments and earnings from its foreign operations. The company might also
face changes in the political or economic conditions in the foreign countries it operates
in. Such instabilities could negatively impact the revenue growth of the company.
Environmental regulations -- ExxonMobil’s businesses are subject to numerous laws
and regulations relating to the protection of the environment. With rising awareness
of the damage to the environment caused by industry, especially regarding global
warming, regulatory standards have been continuously tightened in recent years.
IV. Fundamental Analysis
1. Ratio Analysis (U.S Dollar in Billions except per share data. Industry average is the
average of the following companies: ExxonMobil, Chevron, Royal Dutch Shell,
ConocoPhillips, Marathon, and Hess. All data in 2010 is the actual YTD number plus last
Q4 estimate.)
Sales
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
178.909
213.199
263.989
328.213
335.086
358.600
425.071
275.564
345.298
Chevron
91.685
112.937
142.897
184.922
195.341
203.970
255.112
159.293
205.398
Royal Dutch Shell
179.430
201.727
265.191
306.728
318.846
355.784
458.361
277.829
337.947
ConocoPhillips
50.512
90.491
118.719
162.405
167.578
171.500
225.424
136.016
183.272
Marathon
31.464
40.963
45.135
58.271
59.917
59.389
72.128
48.546
67.384
Hess
11.932
14.311
16.733
22.747
28.067
31.647
41.165
29.614
32.512
Industry AVG*
90.655
112.271
142.111
177.214
184.139
196.815
246.210
154.477
195.302
Page 11
Sales Growth
ExxonMobil
20022003
19.166%
20032004
23.823%
20042005
24.328%
20052006
2.094%
20062007
7.017%
20072008
18.536%
20082009
-35.172%
20092010
25.306%
Chevron
23.179%
26.528%
29.409%
5.634%
4.417%
25.073%
-37.560%
28.943%
Royal
Dutch
Shell
ConocoPhillips
12.426%
31.461%
15.663%
3.951%
11.585%
28.831%
-39.386%
21.638%
79.148%
31.194%
36.798%
3.185%
2.340%
31.443%
-39.662%
34.743%
Marathon
30.190%
10.185%
29.104%
2.825%
-0.881%
21.450%
-32.695%
38.805%
Hess
19.938%
16.924%
35.941%
23.388%
12.755%
30.076%
-28.060%
9.785%
Industry AVG*
30.675%
23.352%
28.541%
6.846%
6.206%
25.902%
-35.423%
26.537%
ExxonMobil is the key player in the oil and gas industry. It has experienced continuous
growth in sales over the last five years except the recession year – 2009, which had a
negative impact on the whole economy. Particularly during 2007-2008 periods,
ExxonMobil achieved a growth of 18.536%, which was mainly resulted from the
skyrocketing oil price in that year. The significant decrease in year 2009 could be
attributed to a drop in the oil demand in the market as a result of poor economic
environment.
EBIT
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
14.970
23.183
35.872
49.002
56.939
57.655
66.290
26.239
43.118
Chevron
7.665
12.356
16.692
21.216
27.271
25.627
35.010
14.322
27.001
Royal Dutch Shell
15.396
19.699
27.472
37.629
37.885
41.371
44.530
16.404
26.103
ConocoPhillips
3.002
8.983
13.406
20.438
25.563
22.724
27.146
8.733
13.355
Marathon
1.11
1.836
2.405
4.883
8.414
5.985
7.059
2.921
4.436
Hess
1.157
0.958
1.406
1.995
3.588
3.683
5.038
1.927
3.347
Industry AVG*
7.217
11.169
16.209
22.527
26.610
26.174
30.846
11.758
19.560
EBIT Growth
ExxonMobil
2002-2003
54.863%
2003-2004
54.734%
2004-2005
36.602%
2005-2006
16.197%
2006-2007
1.257%
2007-2008
14.977%
2008-2009
-60.418%
2009-2010
64.326%
Chevron
61.200%
35.092%
27.103%
28.540%
-6.028%
36.614%
-59.092%
88.525%
Royal Dutch Shell
27.948%
39.460%
36.970%
0.682%
9.202%
7.635%
-63.162%
59.129%
ConocoPhillips
199.234%
49.237%
52.454%
25.076%
-11.106%
19.460%
-67.830%
52.922%
Marathon
65.405%
30.991%
103.035%
72.312%
-28.869%
17.945%
-58.620%
51.849%
Hess
-17.200%
46.764%
41.892%
79.850%
2.648%
36.791%
-61.751%
73.679%
Industry AVG*
65.242%
42.713%
49.676%
37.109%
-5.483%
22.237%
-61.812%
65.072%
Page 12
EBIT is a measure of a company’s profitability that excludes interest and income tax.
ExxonMobil profit is far stronger than the other competitors basically due to the large
amount of revenue contribution. Over the past five years, ExxonMobil had consistently
performed above both the industry average level and its major competitors. In terms of
annual growth, the company had a relatively better year from 2006 to 2007, 1.257%
versus -7.667% of industry average, as a result of the change in accounting policy of oil
industry.
Net Income
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
11.011
20.960
25.330
36.130
39.500
40.610
45.220
19.280
28.677
Chevron
1.134
7.598
13.037
14.099
17.138
18.688
23.931
10.483
14.802
Royal Dutch Shell
9.419
12.241
16.623
25.618
25.442
31.331
26.277
12.502
18.138
ConocoPhillips
0.762
4.593
8.107
13.64
15.55
11.891
16.998
4.858
11.031
Marathon
0.597
1.012
1.257
3.006
4.957
3.948
3.528
1.184
2.495
Hess
0.175
0.467
0.970
1.242
1.916
1.832
2.360
0.740
2.428
Industry AVG*
3.791
7.812
10.887
15.622
17.417
18.050
14.053
8.174
12.928
Net Income Growth
ExxonMobil
2002-2003
90.355%
2003-2004
20.849%
2004-2005
42.637%
2005-2006
9.327%
2006-2007
2.810%
2007-2008
11.352%
2008-2009
-57.364%
2009-2010
48.737%
Chevron
570.018%
71.585%
8.146%
21.555%
9.044%
28.055%
-56.195%
41.204%
Royal Dutch Shell
29.960%
35.799%
54.110%
-0.686%
23.147%
-16.131%
-52.423%
45.080%
ConocoPhillips
502.756%
76.508%
68.250%
14.003%
-23.531%
-242.948%
128.580%
127.067%
Marathon
69.514%
24.209%
139.141%
64.904%
-20.355%
-10.638%
-66.440%
110.709%
Hess
366.857%
-107.709%
-28.041%
-54.267%
4.384%
-28.821%
68.644%
-228.095%
Industry AVG*
271.577%
20.207%
47.374%
9.139%
-0.750%
-43.189%
-5.866%
24.117%
Net income is a measure of net profit in a company’s past periods. One portion of net
income may be allocated to the shareholders as a form of dividend. The other portion can
be kept by the company as retained earnings for the future operation. Due to the scale of
ExxonMobil, it had comparatively very strong net income compared to the industry
average level and other competitors. From the above chart we can conclude that
ExxonMobil had relatively fluctuation in net income growth, particularly in 2006
Page 13
(2.810%) and 2009 (-57.364%), which were due to the accounting policy change and
economic recession, respectively.
From the long-run perspective, ExxonMobil will stay the same net income level due to
the further oil wells exploration and drilling to keep its comparative advantage to the
other competitor companies.
CFO
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
21.268
28.498
40.551
48.138
49.286
52.002
59.725
28.438
47.094
Chevron
9.941
12.315
14.690
20.105
24.323
24.977
29.632
19.373
30.531
Royal Dutch Shell
16.365
21.719
26.038
29.852
31.397
34.451
43.559
20.943
29.575
ConocoPhillips
4.969
9.356
11.959
17.628
21.516
24.550
22.658
12.479
14.840
Marathon
2.405
2.761
3.730
4.738
5.488
6.521
6.782
5.268
4.582
Hess
1.965
1.581
1.903
1.840
3.491
3.507
4.567
3.046
4.061
Industry AVG*
9.485
12.705
16.479
20.383
22.584
24.335
27.821
14.924
21.781
CFO Growth
ExxonMobil
2002-2003
33.995%
2003-2004
42.294%
2004-2005
18.710%
2005-2006
2.385%
2006-2007
5.511%
2007-2008
14.851%
2008-2009
-52.385%
2009-2010
65.602%
Chevron
23.881%
19.285%
36.862%
20.980%
2.689%
18.637%
-34.621%
57.595%
Royal Dutch Shell
32.716%
19.887%
14.646%
5.177%
9.727%
26.437%
-51.921%
41.217%
ConocoPhillips
88.287%
27.822%
47.404%
22.056%
14.101%
-7.707%
-44.925%
18.919%
Marathon
14.802%
35.096%
27.024%
15.829%
18.823%
4.002%
-22.324%
-13.014%
Hess
-19.542%
20.367%
-3.311%
89.728%
0.458%
30.225%
-33.304%
33.319%
Industry AVG*
29.023%
27.459%
23.556%
26.026%
8.551%
14.408%
-39.913%
33.940%
Operating Cash Flow is the cash that a company generates through running its business.
Cash flows are just as or a more important measurement of how well a company is doing
because they need incoming cash to cover their debts and operate their business.
ExxonMobil had sufficient operating cash flow, which is much more than the industry
average level and its major competitors due to its scale playing a huge weight in the
whole industry.
Page 14
A. Profitability Ratios
Gross Margin
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
38.683%
39.058%
38.048%
35.103%
36.358%
35.066%
32.056%
31.829%
31.524%
Chevron
36.914%
36.111%
33.437%
30.397%
33.698%
33.994%
32.357%
36.598%
37.648%
Royal Dutch Shell
19.222%
21.185%
19.942%
20.839%
20.894%
19.834%
16.238%
17.123%
16.885%
ConocoPhillips
14.226%
16.983%
17.236%
17.399%
22.337%
21.213%
19.344%
16.220%
22.517%
Marathon
24.174%
20.794%
11.045%
13.144%
19.245%
15.691%
15.398%
14.819%
13.684%
Hess
30.464%
22.353%
21.813%
19.088%
22.635%
22.049%
21.798%
20.325%
25.254%
Industry AVG*
27.281%
26.081%
23.587%
22.662%
25.861%
24.641%
22.865%
22.819%
24.585%
.
Gross Margin
60.00%
40.00%
20.00%
Exxon Mobil
0.00%
Industry AVG*
Gross Margin represents the markup per dollar of sales. The higher the markup, the more
the company retains on each dollar of sales to service its other costs and obligations.
ExxonMobil did an excellent job on retaining revenue and minimizing costs associated
with production. The company consistently performed far beyond industry average level
and had fared well against most of its competitors.
EBIT Margin
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
8.367%
10.874%
13.588%
14.930%
16.992%
16.078%
15.595%
9.522%
12.041%
Chevron
8.360%
10.941%
11.681%
11.473%
13.961%
12.586%
13.723%
8.991%
13.367%
Royal
Dutch
Shell
ConocoPhillips
8.580%
9.765%
10.274%
12.268%
11.882%
11.628%
9.715%
5.904%
7.319%
5.943%
9.927%
11.292%
12.585%
15.254%
13.250%
12.042%
6.421%
7.654%
Marathon
3.528%
4.482%
5.328%
8.380%
14.043%
10.078%
9.787%
6.017%
6.823%
Hess
9.697%
6.694%
8.403%
8.770%
12.784%
11.638%
12.239%
6.507%
10.779%
Industry AVG*
7.413%
8.780%
10.094%
11.401%
14.153%
12.543%
12.183%
7.227%
9.664%
Page 15
EBIT MArgin
20.00%
15.00%
10.00%
5.00%
0.00%
Exxon Mobil
Industry AVG*
EBIT Margin is calculated by dividing Earnings before Interest and Tax by Revenue.
This measure helps evaluate operating profitability, and measures how much of each
dollar in sales a company retains after operating expenses. ExxonMobil was relatively
more profitable than other competitors and industry average, which matched its leader
position as well.
Net Profit Margin
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
6.155%
9.831%
9.595%
11.008%
11.788%
11.325%
10.638%
6.997%
8.547%
Chevron
1.237%
6.728%
9.121%
7.624%
8.773%
9.162%
9.381%
6.581%
9.820%
Royal
Dutch
Shell
ConocoPhillips
5.249%
6.068%
7.048%
8.352%
7.979%
8.806%
5.733%
4.500%
4.989%
1.509%
5.076%
6.829%
8.399%
9.279%
6.934%
7.540%
3.572%
6.850%
Marathon
1.897%
2.471%
2.785%
5.159%
8.273%
6.648%
4.891%
2.439%
3.809%
Hess
1.467%
3.263%
5.797%
5.460%
6.827%
5.789%
5.733%
2.499%
8.316%
Industry AVG*
2.430%
5.573%
6.862%
7.667%
8.820%
8.111%
4.806%
4.431%
7.055%
Net Profit Margin
15.00%
10.00%
5.00%
0.00%
Exxon Mobil
Industry AVG*
Page 16
Net profit margin is the amount left per dollar sales after all expenses and costs are
deducted. ExxonMobil is consistently higher than the level of most of its competitors and
industry average. From the upstream perspective, “as future development projects bring
new production online, the Corporation expects a shift in the geographic mix of its
production volumes between now and 2014. Oil and natural gas output from West Africa,
the Caspian region, the Middle East and Russia is expected to increase over the next five
years based on current capital project execution plans. Currently, these growth areas
account for 42 percent of the Corporation’s production. By 2014, they are expected to
generate about 50 percent of total volumes. The remainder of the Corporation’s
production is expected to be sourced from established areas, including Europe, North
America and Asia Pacific.” 6 As a result, we believe ExxonMobil will achieve a potential
sales growth in the long run.
ROE
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
14.904%
25.481%
26.431%
33.934%
35.106%
34.473%
38.530%
17.250%
16.596%
Chevron
3.459%
22.380%
31.975%
26.131%
26.042%
25.595%
29.231%
11.742%
14.142%
Royal
Dutch
Shell
ConocoPhillips
16.208%
18.420%
23.627%
28.948%
25.876%
27.282%
20.917%
9.483%
9.401%
3.397%
14.301%
21.033%
28.579%
22.973%
13.857%
23.584%
8.260%
14.135%
Marathon
11.914%
18.141%
17.722%
30.339%
37.679%
23.340%
17.366%
5.466%
8.227%
Hess
3.823%
9.740%
17.738%
20.904%
26.617%
20.486%
21.376%
5.761%
14.199%
Industry AVG*
7.677%
18.077%
23.088%
28.139%
29.049%
24.172%
17.306%
9.660%
12.783%
ROE
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Exxon Mobil
Industry AVG*
ROE is the amount of net income returned as a percentage of shareholders equity. Return
on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested. ExxonMobil got a tremendous gap
over the industry average in year 2008 due to the amazing increase in crude oil price.
Compared to the other competitors, ExxonMobil has also better performed than them.
6
10-K EXXONMOBIL CORP, February 26, 2010
Page 17
However, there is a huge decline in 2009 due to the economic recession and we believe it
will recover to pre-recession level in the future except any special events (skyrocket
price, recession, etc.).
ROA
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
7.444%
12.823%
13.762%
18.036%
18.625%
17.734%
19.368%
8.430%
7.988%
Chevron
1.472%
9.634%
15.045%
12.951%
13.333%
13.360%
15.618%
6.515%
8.063%
Royal Dutch Shell
7.129%
7.632%
10.644%
12.758%
11.326%
12.570%
9.639%
4.414%
4.426%
ConocoPhillips
1.361%
5.770%
9.254%
13.658%
11.448%
6.945%
10.606%
3.289%
6.052%
Marathon
5.256%
5.437%
5.872%
11.626%
16.774%
10.770%
8.301%
2.646%
3.913%
Hess
1.222%
3.467%
6.654%
7.516%
9.943%
8.101%
9.336%
2.774%
7.119%
Industry AVG*
3.573%
7.461%
10.205%
12.757%
13.575%
11.580%
8.609%
4.678%
6.260%
ROA
25.00%
20.00%
15.00%
10.00%
Exxon Mobil
5.00%
Industry AVG*
0.00%
ROA is an indicator of how profitable a company is relative to its total assets. ROA gives
an idea as to how efficient management is at using its assets to generate earnings,
calculated by dividing a company's annual earnings by its total assets. From the above
chart we conclude that ExxonMobil generates more earnings per asset dollar than the
other competitors, which is also an important competitive advantage for ExxonMobil to
show their good operating efficiency.
Page 18
B. Efficiency Ratios
Asset Turnover
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
1.210x
1.304x
1.434x
1.638x
1.580x
1.566x
1.821x
1.205x
0.935x
Chevron
1.190x
1.432x
1.649x
1.699x
1.520x
1.458x
1.665x
0.990x
0.821x
Royal Dutch Shell
1.358x
1.258x
1.661x
1.739x
1.588x
1.584x
1.839x
1.019x
0.928x
ConocoPhillips
0.902x
1.137x
1.491x
1.854x
1.678x
1.263x
1.317x
0.849x
0.921x
Marathon
1.856x
2.201x
2.425x
2.722x
2.317x
2.010x
1.968x
1.142x
1.093x
Hess
0.834x
1.062x
1.242x
1.560x
1.699x
1.642x
1.820x
1.172x
0.932x
Industry AVG*
1.225x
1.399x
1.651x
1.869x
1.730x
1.587x
1.738x
1.063x
0.938x
Asset Turnover
2
1.5
1
Exxon Mobil
0.5
Industry AVG*
0
Asset turnover measures a firm's efficiency at sales generated per dollar of assets - the
higher the number the better. ExxonMobil’s asset turnover ratio is nearly the same level
to the industry.
Receivable Turnover
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
8.789x
9.377x
10.630x
12.422x
11.877x
10.968x
13.902x
10.528x
8.573x
Chevron
10.381x
11.822x
12.902x
12.489x
11.223x
10.180x
13.321x
9.493x
7.833x
Royal Dutch Shell
9.406x
8.588x
9.032x
6.145x
5.255x
5.544x
6.156x
4.142x
4.418x
ConocoPhillips
17.805x
19.284x
17.214x
15.670x
12.868x
11.261x
15.903x
10.791x
10.191x
Marathon
17.355x
18.688x
15.658x
17.217x
15.476x
11.728x
15.906x
12.276x
9.610x
Hess
4.837x
7.388x
7.839x
7.555x
7.457x
7.376x
9.143x
7.204x
6.322x
Industry AVG*
11.429x
12.524x
12.213x
11.916x
10.693x
9.509x
12.389x
9.072x
7.824x
Page 19
Receivable Turnover
15
10
5
Exxon Mobil
0
Industry AVG*
Receivable turnover is an activity ratio, measuring the number of times that receivables
are collected during the period. From this point of view, ExxonMobil’s performance is
around the industry average level. It is mainly result from the operating cycle of oil
industry is very long and ExxonMobil has huge amount of receivables. Therefore, they
may need more time than industry average to collect their receivables.
Inventory
Turnover
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
13.737x
15.263x
17.734x
22.650x
21.288x
21.360x
25.407x
16.195x
13.144x
Chevron
10.128x
26.669x
33.783x
36.236x
29.512x
27.018x
28.373x
16.312x
14.944x
Royal
Dutch
Shell
ConocoPhillips
8.711x
13.832x
15.198x
13.815x
11.734x
10.425x
15.102x
9.852x
7.762x
6.704x
19.257x
25.779x
36.305x
29.322x
28.822x
39.025x
22.711x
16.622x
Marathon
6.221x
16.482x
20.339x
20.100x
15.573x
15.526x
17.990x
11.601x
11.118x
Hess
7.963x
20.751x
22.269x
25.369x
23.348x
21.879x
25.170x
17.185x
11.909x
Industry AVG*
8.910x
18.709x
22.517x
25.746x
21.796x
20.838x
25.178x
15.643x
Page 20
12.583x
Inventory Turnover
30
25
20
15
10
5
0
Exxon Mobil
Industry AVG*
Inventory turnover is a measure of the number of times inventory is sold or used in a time
period such as a year. From the above graph, we see that ExxonMobil’s inventory
turnover ratio is below the industry average level from 2003 to 2006, which means
ExxonMobil needs more time to sold or replace its inventory than other major
competitors. After 2006 ExxonMobil kept the same pace with the industry average level
due to the improvement of its operation.
C. Liquidity Ratios
Current Ratio
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
1.154
1.197
1.405
1.584
1.552
1.474
1.472
1.061
1.014
Chevron
0.894
1.206
1.517
1.373
1.278
1.165
1.139
1.422
1.657
Royal
Dutch
Shell
ConocoPhillips
0.736
0.801
1.131
1.152
1.197
1.223
1.105
1.138
1.110
0.851
0.799
0.964
0.918
0.948
0.920
0.957
0.893
1.389
Marathon
1.224
1.436
1.688
1.151
1.252
0.940
1.084
1.174
1.208
Hess
1.080
1.194
0.923
0.821
0.868
0.863
0.949
1.166
1.346
Industry AVG*
0.990
1.105
1.271
1.166
1.183
1.098
1.117
1.142
1.287
Page 21
Current Ratio
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Exxon Mobil
Industry AVG*
Current ratio measures a company's ability to pay short-term obligations. ExxonMobil
has sufficient cash current assets to insure that they will able to meet their short-term
obligations if required to do so.
Quick Ratio 2
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
0.856
0.910
1.128
1.312
1.266
1.217
1.155
0.740
0.688
Chevron
0.662
0.930
1.233
1.133
1.023
0.904
0.794
1.012
1.211
Royal Dutch Shell
0.459
0.462
0.820
0.892
0.864
0.855
0.882
0.779
0.798
ConocoPhillips
0.366
0.392
0.653
0.663
0.565
0.663
0.585
0.581
0.957
Marathon
0.640
0.933
1.257
0.754
0.843
0.632
0.572
0.753
0.735
Hess
0.850
0.907
0.691
0.616
0.632
0.662
0.673
0.772
0.958
Industry AVG*
0.639
0.756
0.964
0.895
0.865
0.822
0.777
0.773
0.891
Quick Ratio 2
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Exxon Mobil
Industry AVG*
Page 22
Quick Ratio measures the ability of a company to use its most liquid current assets to
extinguish or retire its current liabilities immediately. The above chart shows that
ExxonMobil was always far beyond the industry average level before 2009. From 2005,
ExxonMobil began its repurchase program, which is the main reason they burned their
cash. As a result, the quick ratio decreased gradually. From 2009, ExxonMobil increased
the amount of repurchase, accompanying with some environmental lawsuit, which
resulted in a sharp drop of quick ratio in this year.
D. Long-term Solvency Ratios
A Long-term Debt to Equity
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
0.089
0.053
0.049
0.056
0.058
0.059
0.062
0.064
0.105
Chevron
0.345
0.300
0.231
0.194
0.111
0.079
0.070
0.110
0.102
Royal Dutch Shell
0.113
0.125
0.103
0.083
0.092
0.100
0.108
0.226
0.246
ConocoPhillips
0.633
0.475
0.336
0.204
0.279
0.228
0.491
0.431
0.335
Marathon
0.868
0.672
0.500
0.316
0.210
0.316
0.331
0.385
0.336
Hess
1.171
0.724
0.676
0.598
0.462
0.401
0.310
0.323
0.352
Industry AVG*
0.537
0.392
0.316
0.242
0.202
0.197
0.229
0.257
0.246
Long-term Debt to Equity
0.6
0.4
Exxon Mobil
0.2
Industry AVG*
0
It measures the relative proportion of debt to equity in the capital structure, or the amount
of debt for every dollar of equity. Because ExxonMobil has a lot of free cash, so it
doesn’t need to issue debt to meet its operating activities, which is the reason why
ExxonMobil is far below the industry average level.
Page 23
Financial Leverage
2002
2003
2004
2005
2006
2007
2008
2009
2010*
ExxonMobil
2.002
1.987
1.921
1.881
1.885
1.944
1.989
2.046
2.078
Chevron
2.350
2.323
2.125
2.018
1.953
1.916
1.872
1.802
1.754
Royal Dutch Shell
2.274
2.413
2.220
2.269
2.285
2.170
2.170
2.149
2.124
ConocoPhillips
2.497
2.478
2.273
2.093
2.007
1.995
2.224
2.511
2.336
Marathon
3.383
3.336
3.018
2.610
2.246
2.167
2.092
2.066
2.102
Hess
3.127
2.809
2.666
2.781
2.677
2.529
2.290
2.077
1.995
Industry AVG*
2.605
2.558
2.370
2.275
2.175
2.120
2.106
2.108
2.065
Financial Leverage
3
2
1
Exxon Mobil
0
Industry AVG*
Financial leverage measures how a company is using its leverage of all types, including
debt and payables. Companies that are highly leveraged may be at risk of bankruptcy if
they are unable to make payments on their debt; they may also be unable to find new
lenders in the future. Financial leverage is not always bad, however; it can increase the
shareholders' return on their investment and often there is tax advantages associated with
borrowing.
E. DuPont Analysis
2002
2003
2004
2005
2006
2007
2008
2009
2010*
Net Profit Margin
6.155%
9.831%
9.595%
11.008%
11.788%
11.325%
10.638%
6.997%
8.547%
Asset Turnover
1.210x
1.304x
1.434x
1.638x
1.580x
1.566x
1.821x
1.205x
0.935x
Financial Leverage
2.002
1.987
1.921
1.881
1.885
1.944
1.989
2.046
2.078
ROE
14.904%
25.481%
26.431%
33.934%
35.106%
34.473%
38.530%
17.250%
16.596%
Page 24
From the above table we could see that the factor which drives ExxonMobil’s ROE
higher than the other competitors is the net profit margin, which shows that ExxonMobil
is the frontrunner in the industry.
2. Risk Factors 7
A. Supply and Demand
Demand-related factors -- Other factors that may affect the demand for oil, gas and
petrochemicals, and therefore impact their results, include technological improvements in
energy efficiency; seasonal weather patterns, which affect the demand for energy
associated with heating and cooling; increased competitiveness of alternative energy
sources that have so far generally not been competitive with oil and gas without the
benefit of government subsidies or mandates; and changes in technology or consumer
preferences that alter fuel choices, such as toward alternative fueled vehicles.
Supply-related factors -- Commodity prices and margins also vary depending on a
number of factors affecting supply. World oil, gas, and petrochemical supply levels can
also be affected by factors that reduce available supplies, such as adherence by member
countries to OPEC production quotas and the occurrence of wars, hostile actions, or
natural disasters that may disrupt supplies. Technological change can also alter the
relative costs for competitors to find, produce, and refine oil and gas and to manufacture
petrochemicals.
Other market factors -- ExxonMobil’s business results are also exposed to potential
negative impacts due to changes in currency exchange rates, interest rates, inflation, and
other local or regional market conditions.
B. Government and Political Factors
Regulatory and litigation risks -- Even in countries with well-developed legal systems
where ExxonMobil does business, the company remains exposed to changes in law
(including changes that result from international treaties and accords) that could
adversely affect their results, such as increases in taxes or government royalty rates
(including retroactive claims); price controls; changes in environmental regulations or
other laws that increase their cost of compliance; and expropriation.
Government sponsorship of alternative energy -- Many governments are providing tax
advantages and other subsidies and mandates to make alternative energy sources more
competitive against oil and gas. Governments are also promoting research into new
technologies to reduce the cost and increase the scalability of alternative energy sources.
7
XOM 10-k
Page 25
C. Management Effectiveness
In addition to external economic and political factors, their future business results also
depend on their ability to manage successfully those factors that are at least in part within
their control. The extent to which they manage these factors will impact their
performance relative to competition.
Exploration and development program -- Their ability to maintain and grow their oil and
gas production depends on the success of their exploration and development efforts.
Among other factors, they must continuously improve their ability to identify the most
promising resource prospects and apply their project management expertise to bring
discovered resources on line on schedule.
Operational efficiency -- An important component of ExxonMobil’s competitive
performance, especially given the commodity-based nature of many of their businesses,
is their ability to operate efficiently, including their ability to manage expenses and
improve production yields on an ongoing basis. This requires continuous management
focus, including technology improvements, cost control, productivity enhancements and
regular reappraisal of their asset portfolio.
Research and development -- To maintain their competitive position, especially in light
of the technological nature of their businesses and the need for continuous efficiency
improvement, ExxonMobil’s research and development organizations must be successful
and able to adapt to a changing market and policy environment.
3. Earning Forecast
This section forecasts EPS for fiscal year 2011 by estimating the industry revenue and
using the market share of ExxonMobil to estimate their 2011 revenue.
Total Revenue
ExxonMobil’s total revenue is expected to be $327.119 billion in 2011. We established a
custom industry that includes other six major companies in Oil and Gas Integrated
industry. By investigating the historical market share of XOM from 2001 to 2010, we
estimate it will account for 23% of the custom industry revenue, which will be expected
to increase by 10.82% next year. The growth rate of industry revenue comes from the
IBIS World, a research company. 8
Gross Profit
ExxonMobil’s Gross profit is expected to be $96.34 billion, or 25.89% of total revenue,
while the total COGS incl. D&A will be 275.79 billion, or 74.11% of total revenue.
COGS excl. D&A, 70.00% of total revenue for next year, will be higher than previous
years, because the output of existing wells was decreasing and XOM needs to continually
find and develop new fields in order to maintain or increase production. Based on the
assumption that XOM will depreciate in the same way after they acquired 47.3 billion
8
http://www.dailyfinance.com/story/ten-industries-set-for-the-strongest-growth-through-2011/19473654/
Page 26
property, plant and equipment from XTO, the D&A for XOM will be $15.3 billion, or
4.11% of total revenue.
Operating Expense
SG&A and R&D expenses are estimated at around $17.20 billion, estimated at 4.62% of
Total Revenue. Through analyzing historical SG&A as percent of total revenue, it is
obvious that this expense in general keeps going down in percent, excluding 2009 when
the oil demand significantly decreased. Therefore, we estimate the SG&A for XOM will
be 4.3% of total revenue, or $16.00 billion for next year. R&D expense is expected to go
up to $1.2 billion because the company intends to spend more money on the development
of technology, in order to increase their downstream business, such as refining.
EBIT
ExxonMobil’s Earnings before Interest and Taxes are forecasted to be $38.6 billion. This
was arrived after deducting all operating expenses from gross profit.
EBT
According to the return rate of 9.514% on total investment in last year, we assume that
the range of target interest rate is constant and the Nonoperating Income is expected to be
$1.369 billion.
Equity in affiliates primarily derived from XOM’s subsidiaries which are not wholly
owned companies. Assuming the total revenue of all subsidiaries will increase by the
same rate as our custom industry, we expect income from equity affiliates will be $10.67
billion.
Total debt is $18.3 billion at September 30, 2010, which included $8.0 billion of debt in
connection with the XTO acquisition. Because XOM maintained a revolving commercial
paper program, we assume they will issue another $2.11 billion short-term debt next year
and accordingly the Gross Interest Expense is forecasted to be $0.73 billion. Based on our
estimation above, the earnings before tax could be $52.17 billion for 2011.
Tax
Effective tax rate is expected to be 43%, higher than current year, with consideration of
federal government’s ongoing discussion would increase oil and gas industry’s tax rate.
Net Income Available to Common
XOM does not have any preferred stock and the net income available to common
shareholders is forecasted to be $28.787 billion.
EPS
ExxonMobil’s Expected Earnings per Share E(EPS) is expected to be $5.588. According
to their announcement in third quarterly report, XOM will spend $5 billion to purchase
outstanding shares in last quarter. We forecast the outstanding shares and diluted shares
at the end of this year are 4,969 million and 5,151 million respectively. In order to be
conservative, we assume that XOM would not keep purchasing stocks next year, even
though the Corporation has announced their intention to resume purchases of shares of its
Page 27
common stock for the treasury both to offset shares issued in conjunction with company
benefit plans and programs and to gradually reduce the number of shares outstanding.
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 YTD
2011
Industry
Revenues
665.285
722.653
906.197
1053.737
1312.749
1370.743
1465.256
1838.403
1167.889
1,076.272
1617.910
Market Share
28.185%
24.757%
23.527%
25.053%
25.002%
24.446%
24.474%
23.122%
23.595%
23.056%
23.000%
Sales/Revenue
$ 187.510
$ 178.909
$ 213.199
$ 263.989
$ 328.213
$ 335.085
$ 358.600
$ 425.071
$ 275.564
$ 248.150
$ 372.119
COGS
D&A
$ 111.631
$ 109.701
$ 129.928
$ 163.547
$ 213.002
$ 213.255
$ 232.852
$ 288.810
$ 187.854
$ 171.515
$ 260.484
Depreciation &
Amortization
$ 7.944
$ 8.310
$ 9.047
$ 9.767
$ 10.253
$ 11.416
$ 12.250
$ 12.379
$ 11.917
$ 10.490
$ 15.301
Total
COGS
inl. D&A
$ 119.575
$ 118.011
$ 138.975
$ 173.314
$ 223.255
$ 224.671
$ 245.102
$ 301.200
$ 199.771
$ 182.005
$ 275.785
GROSS
PROFIT
$ 67.935
$ 60.898
$ 74.224
$ 90.675
$ 104.958
$ 110.414
$ 113.498
$ 123.882
$ 75.793
$ 66.145
$ 96.335
COGS
excl.
D&A as % of
Rev
59.53%
61.32%
60.94%
61.95%
64.90%
63.64%
64.93%
67.94%
68.17%
69.12%
70.00%
Research
&
Development
$ 0.603
$ 0.631
$ 0.618
$ 0.649
$ 0.712
$ 0.733
$ 0.814
$ 0.847
$ 1.050
0
$ 1.200
Other SG&A
$ 12.297
$ 11.725
$ 12.778
$ 13.200
$ 13.690
$ 13.540
$ 14.076
$ 15.026
$ 13.685
$ 10.828
$ 16.001
Total
SGA,
Operating
Expenses
$ 12.900
$ 12.356
$ 13.396
$ 13.849
$ 14.402
$ 14.273
$ 14.890
$ 15.873
$ 14.735
$ 10.828
$ 17.201
Op Exp as % of
COGS
10.8%
10.5%
9.6%
8.0%
6.5%
6.4%
6.1%
5.3%
7.4%
5.9%
6.24%
Op Exp as % of
Revenue
6.56%
6.55%
5.99%
5.00%
4.17%
4.04%
3.93%
3.53%
4.97%
4.36%
4.30%
Other
Operating
Expenses
$ 33.377
$ 33.572
$ 37.645
$ 40.954
$ 41.554
$ 39.203
$ 40.953
$ 41.719
$ 34.819
$ 26.488
$ 38.600
OPERATING
INCOME
$ 21.658
$ 14.970
$ 23.183
$ 35.872
$ 49.002
$ 56.938
$ 57.655
$ 66.290
$ 26.239
$ 28.829
$ 40.534
$ 0.000
$ 1.491
$ 5.311
$ 1.822
$ 4.142
$ 5.138
$ 5.323
$ 6.699
$ 1.943
$ 1.728
$ 1.369
$ 4.071
$ 2.066
$ 4.373
$ 4.961
$ 7.583
$ 6.985
$ 8.901
$ 11.081
$ 7.143
$ 7.224
$ 10.674
excl.
OTHER
INCOME
(EXPENSE)
Nonoperating
Income(Expens
e)-Net
Equity
Affiliates
in
Page 28
Gross Interest
Expense
$ 0.811
$ 0.824
$ 0.697
$ 1.138
$ 0.930
$ 1.184
$ 0.957
$ 1.183
$ 0.973
$ 0.729
Interest
Capitalized
$ 0.518
$ 0.426
$ 0.490
$ 0.500
$ 0.434
$ 0.530
$ 0.557
$ 0.510
$ 0.425
$ 0.321
Net
Interest
Income
(Expense)
$ 0.293
$ 0.398
$ 0.207
$ 0.638
$ 0.496
$ 0.654
$ 0.400
$ 0.673
$ 0.548
$ 0.150
$ 0.408
Unusual Exp.
(Income) - Net
$ 0.748
$ 0.410
$ 0.000
$ 0.000
$ 0.000
$ 0.000
$ 0.000
$ 0.000
$ 0.000
$ 0.000
$ 0.000
EBT
$ 24.688
$ 17.719
$ 32.660
$ 42.017
$ 60.231
$ 68.407
$ 71.479
$ 83.397
$ 34.777
$ 37.631
$ 52.169
Income Taxes
$ 9.014
$ 6.499
$ 11.006
$ 15.911
$ 23.302
$ 27.902
$ 29.864
$ 36.530
$ 15.119
$ 15.750
$ 22.433
EAT
$ 15.674
$ 11.220
$ 21.654
$ 26.106
$ 36.929
$ 40.505
$ 41.615
$ 46.867
$ 19.658
$ 21.881
$ 29.736
Minority
Interest
Expense
$ 0.569
$ 0.209
$ 0.694
$ 0.776
$ 0.799
$ 1.051
$ 1.005
$ 1.647
$ 0.378
$ 0.672
$ 0.949
NET INCOME
$ 15.105
$ 11.011
$ 20.960
$ 25.330
$ 36.130
$ 39.454
$ 40.610
$ 45.220
$ 19.280
$ 21.209
$ 28.787
NI available to
Common
$ 15.105
$ 11.011
$ 20.960
$ 25.330
$ 36.130
$ 39.454
$ 40.610
$ 45.220
$ 19.280
$ 21.209
$ 28.787
Wgt
Avg
Diluted Shares
6941
6803
6662
6519
6322
5970
5577
5203
4848
4838
5151
EPS
$ 2.18
$ 1.62
$ 3.15
$ 3.89
$ 5.71
$ 6.61
$ 7.282
$ 8.691
$ 3.977
$ 4.384
$ 5.588
36.51%
36.68%
33.70%
37.87%
38.69%
40.79%
41.78%
43.80%
43.47%
41.85%
43.00%
Realized
Rates
Tax
Page 29
V . R elative V aluation
As shown in the following table, we have collected the historical trailing P/E ratio of
ExxonMobil from 2002 to 2010 as well as its comparables, which includes Chevron
Corp.(CVX), Royal Dutch Shell Plc(RDS.B), ConocoPhillips(COP), Marathon Oil
Corp.(MRO), Hess Corp.(HES), and S&P 500 Energy Sector. Based on these comparable
companies, we calculated the average as our custom industry’s P/E.
2002
2003
2004
2005
2006
2007
2008
2009
2010 YTD
Comparables
As of 11/30
ExxonMobil
21.702x
13.016x
13.177x
9.837x
11.576x
12.870x
9.186x
17.133x
12.330x
Chevron Corp.
62.131x
12.099x
8.552x
8.680x
9.427x
10.642x
6.338x
14.693x
9.660x
Royal Dutch Shell Plc
16.593x
14.618x
10.880x
8.513x
8.961x
8.300x
6.022x
14.248x
12.390x
ConocoPhillips
32.918x
9.787x
7.505x
6.042x
7.448x
12.230x
--
15.762x
8.570x
Marathon Oil Corp.
11.089x
10.150x
10.083x
7.181x
6.737x
10.715x
5.527x
15.155x
10.730x
Hess Corp.
--
10.285x
8.608x
10.621x
8.166x
17.571x
7.409x
26.652x
9.450x
Industry Avg
28.886x
11.659x
9.801x
8.479x
8.719x
12.055x
6.897x
17.274x
10.522x
S&P 500 or Index
18.559x
13.738x
11.850x
10.655x
10.442x
13.025x
7.587x
24.911x
xxxxxxxxx
In order to estimates the current price, we divided XOM’s historical P/E by each of its
comparables and accordingly calculated both the mean and median to form our
adjustment factor. During this calculation, we excluded some outliers which cannot
accurately reflect the most recent trend.
Proportion between XOM and each competitor
2002
2003
2004
2005
2006
2007
2008
2009
2010
XOM/CVX
34.93%
107.57%
154.08%
113.33%
122.79%
120.93%
144.93%
116.61%
127.64%
XOM/RDS.B
130.79%
89.04%
121.12%
115.55%
129.18%
155.06%
152.54%
120.25%
99.52%
XOM/COP
65.93%
133.00%
175.59%
162.82%
155.41%
105.23%
--
108.70%
143.87%
XOM/MRO
195.71%
128.23%
130.69%
136.98%
171.82%
120.11%
166.20%
113.05%
114.91%
XOM/HES
--
126.56%
153.08%
92.62%
141.75%
73.24%
123.99%
64.28%
130.48%
XOM/Industry Avg.
75.13%
111.64%
134.45%
116.01%
132.76%
106.76%
133.20%
99.19%
117.19%
XOM/S&P 500
116.94%
94.74%
111.20%
92.32%
110.86%
98.80%
121.08%
68.78%
xxxxxxxxx
Page 30
Arithmetic Mean
Median
Chevron Corp.
121.97%
120.93%
Royal Dutch Shell Plc
123.67%
121.12%
ConocoPhillips
140.66%
143.87%
Marathon Oil Corp.
113.98%
113.98%
Hess Corp.
113.25%
125.28%
Industry Avg
121.72%
116.60%
S&P 500 or Index
106.56%
110.86%
From tables, you can see the 2011 forward P/E for XOM and its comparables. In
addition, we assume the industry’s P/E is mean-reverting and use both average and
median of historical data as the expected P/E of industry for 2011.
Forward P/E for 2011
Chevron Corp.
8.530x
Royal Dutch Shell Plc
8.140x
ConocoPhillips
9.550x
Marathon Oil Corp.
7.830x
Hess Corp.
12.500x
Industry Avg
9.310x
S&P 500 or Index
11.811x
Expected P/E of Industry for 2011
Mean
10.676x
Median
10.161x
By using Current Price = E(EPS2011)*Forward(P/E)*Mean/Median of Historical relative
proportion, we get the estimate prices of XOM based on each comparable.
Page 31
Estimate of Current Price
Mean
Median
Chevron Corp.
$58.14
$57.64
Royal Dutch Shell Plc
$56.25
$55.09
ConocoPhillips
$75.06
$76.78
Marathon Oil Corp.
$49.87
$49.87
Hess Corp.
$79.10
$87.50
Industry Avg
$63.32
$60.66
S&P 500 or Index
$70.33
$73.17
Expected mean of Industry
$72.61
$69.56
Expected median of Industry
$69.11
$66.21
Estimate of the Price
Mean of Proportion
Median of Proportion
Mean
$65.98
$66.28
Median
$69.11
$66.21
From the two tables above, the estimate range of current price is $65.98~$69.11,
indicating the current market price of $71.33 is fairly valued.
Conclusion: Neutral
VI. Absolute Valuation
The goal of the absolute valuation is to determine the intrinsic value of a security, based
on future cash flows which are discounted back to present. Due to the fact that
ExxonMobil has continuously paid dividends, we choose the Dividend Discount Model
to analyze its intrinsic value.
In order to decrease the impact of bias on our final conclusion, we will use three different
costs of capital during the scenarios analysis. For the first one, we collected the ask yield
of 10-year Treasury Principal Strip as the risk-free rate that is collected on Dec 7, 2010.
During the top-down analysis, we have predicted that the economy will definitely grow
but at a sluggish rate from the current recession. As a result, compared with the 10-year
Beta, we think the 5-year adjusted Beta could appropriately reflect the current economic
environment. For the second cost of capital, based on the same Beta and risk-free rate in
calculation of K1, we used the U.S. market premium from McGraw-Hill, a consultant
Page 32
company. For the last cost of capital, we added the equity risk premium of 3.5% on the
yield to maturity 4.008% of XOM’s corporate bond, which is due in 2021.
CAPM
Market Return
11.069%
10-year Treasury Principal Strip
3.203%
5-year Beta
0.653
10-year Beta
0.681
K1=8.339%
McGraw-Hill
U.S. Market Premium
5.950%
K2=7.088%
YTM of XOM Corporate Bond Due in 2021
4.008%
Equity Risk Premium
3.500%
K3=7.508%
From the following table, you can see the historical EPS, DPS and dividend payout ratio
from 1999 to 2010, clearly showing that the XOM’s dividend constantly increased.
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
EPS
1.119
2.272
2.176
1.619
3.146
3.886
5.715
6.616
7.282
8.691
3.977
5.874
DPS
0.835
0.880
0.920
0.920
0.980
1.060
1.140
1.280
1.370
1.550
1.660
1.740
Payout
Ratio
74.60%
38.73%
42.29%
56.84%
31.15%
27.28%
19.95%
19.35%
18.81%
17.83%
41.74%
29.62%
Geometric growth rate for dividend
Geometric average of historical growth rate of dividend
1999~2010
6.902%
2002~2010
8.292%
2005~2010
8.825%
Page 33
The geometric average growth rate of DPS from 2005 to 2010 is higher than the other
two periods which are 6.902% and 8.292%. We assume the company’s payout policy will
not be changed in near future and therefore chose the growth rate of the most recent
period 2005~2010 as the one in next five years. Then, we calculated the estimate
dividend from 2011 to 2015 and discount them based on each cost of capital.
E(DPS)
2011
2012
2013
2014
2015
1.894
2.061
2.243
2.440
2.656
2011
2012
2013
2014
2015
SUM
K1
1.748
1.756
1.763
1.771
1.779
8.818
K2
1.768
1.797
1.826
1.856
1.886
9.133
K3
1.761
1.783
1.805
1.827
1.849
9.025
Based on the PV of dividend from 2011 to 2015 and three costs of capital, we created a
scenario analysis in which we assume the 2016 dividend will grow at the different rates
from 1% to 9%. Then, we calculated the terminal value of post-2015 dividends as of
2015 and discounted them to now. By adding the sum of PV of dividends in next five
years, we tried to find out which growth rate could make the estimate intrinsic value
equal to current price of $71.33.
Terminal Value
Intrinsic Value
Growth Rate
E(DPS)
k1
k2
k3
k1
k2
k3
1.000%
2.682
36.547
44.057
41.216
33.303
40.415
37.724
2.000%
2.709
42.731
53.237
49.181
37.447
46.934
43.270
3.000%
2.735
51.231
66.909
60.680
43.142
56.641
51.277
3.935%
2.760
62.670
87.535
77.254
50.806
71.287
62.817
4.000%
2.762
63.648
89.434
78.735
51.461
72.635
63.848
4.408%
2.773
70.529
103.451
89.447
56.071
82.588
71.307
5.000%
2.789
83.503
133.530
111.187
64.763
103.946
86.445
5.340%
2.798
93.269
160.014
129.041
71.307
122.751
98.876
6.000%
2.815
120.331
258.661
186.680
89.438
192.795
139.010
7.000%
2.842
212.146
3216.406
559.389
150.953
2292.941
398.527
8.000%
2.868
844.851
-314.622
-582.978
574.856
-214.265
-396.902
9.000%
2.895
-438.274
-151.430
-194.022
-284.820
-98.390
-126.073
Page 34
As shown in the table above, we found that the post-2015 growth rate of 5.340%, 3.935%
and 4.408% lead the intrinsic value to current price, respectively based on K1, K2 and
K3. Consequently, for any growth rate higher than 5.340%, XOM is undervalued.
Conclusion: BUY
VII. Retrospective analysis
Based on the relative valuation method, the ExxonMobil is around 10% overvalued.
However, the historical growth rate of dividends over the last 5 years, which includes the
2009 down year, is 8.825%, higher than the highest growth rate of 5.340% which we
found in scenario analysis, indicating that it is definitely undervalued. There is a slight
contradiction between two valuation models, probably because there are some bias in the
estimate of EPS and our relative analysis.
Firstly, we assume that XOM would not keep purchasing stocks next year, while in fact
the Corporation has announced their intention to resume purchases of shares of its
common stock for the treasury. As a result, we believe that the company’s EPS will
absolutely higher than the worst situation we created.
Another bias is that the mean and the median of proportion are based on the historical
P/E, some of which could not accurately reflect the most recent trend because of the
outliers. In addition, there are a couple of comparables making the proportion more
fluctuated, and consequently it is hard to correctly find the suitable adjustment factor in
the relative valuation.
The following table represents the return on stock price of ExxonMobil and its
comparable companies for the last two years. The index chart started at the same level,
while ExxonMobil has the lowest return during this period. Through the previous ratio
analysis, we have known that ExxonMobil has a leading position in profitability ratios.
Moreover, according to the company’s documents, ExxonMobil has continued to
maintain a large portfolio of exploration and development opportunities, which enables
the Corporation to maximize shareholder value and mitigate political and technical risks.
And corporation said that future development projects will further the profitability of
existing oil and gas production. We think there is no reason for the company to keep such
lower return on stock price, comparing with its competitors which have lower
profitability.
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Indexed Total Return
Dec 9, 2008 - Dec 9, 2010
U.S. Dollar (Split / Spinoff -Adjusted)
ConocoPhillips (COP)
Marathon Oil Corp. (MRO)
Royal Dutch Shell PLC ADS (RDS.B)
Hess Corp. (HES)
Chevron Corp. (CVX)
Exxon Mobil Corp. (XOM)
180
160
140
120
100
80
12/08
3/09
6/09
9/09
12/09
3/10
6/10
9/10
Data Source: IDC / Exshare
Based on the absolute valuation and ratio analysis and combined with this advantageous
information, we believe that it is an opportune time to buy ExxonMobil.
VIII. Recommendation: Buy 200 shares
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IX. Bibliography
1.
Fitch Affirms ExxonMobil's IDR at 'AAA'; Outlook Remains Stable Thursday, June 03,
2010 <http://www.istockanalyst.com/article/viewiStockNews/articleid/4178055>
2.
FT
Global
500,
2010
<http://media.ft.com/cms/8ec77a3e-d549-11df-8e86-
00144feabdc0.pdf>
3.
ExxonMobil, News Release, <http://www.businesswire.com/portal/site/exxonmobil/>
4.
Form 8-K. Yahoo Finance. Jun 25, 2010.
5.
ExxonMobil 10-K Document.
6.
U.S. Energy Information Administration, “Short-Term Energy Outlook – Real Energy
Price”, December 7, 2010
7.
Source: Shot Term Energy Outlook, December 2010.
8.
U.S. Energy Information Administration. Short-Term Energy Outlook. Dec 7, 2010.
9.
U.S. Energy Information Administration, Annual Energy Outlook 2010 with Projections
to 2035, DOE/EIA-0383(2010), May 11, 2010.
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