Exxon Mobil Corp (XOM:NYQ) Analysis

Exxon is an American oil company whose origins date back to the 19th century. It is one of the world's giants in its sector and one of the largest companies in the world in terms of turnover. It has more than 70,000 employees worldwide.

Valuation & dividend

XOM is trading at a fairly decent price, considering current stock market valuations. Its share price is:

• 15.72 times current recurring earnings
• 17.78 times average recurring earnings
• 1.68 times book value and tangible assets
• 1.16 times sales
• 19.65 times current free cash flow
• 30.45 times the average free cash flow.

So it's quite interesting, except in relation to the FCF. The EBIT only amounts to 5,72% of the enterprise value. However, the EBITDA climbs to 10,86% which seems to confirm an affordable valuation.

The dividend is particularly attractive, with a yield of 4.24%. Be careful, however, because the distribution ratios are high, with:

• 66.6 % current recurring profits
• 75.34% average recurring profits
• 83.25% of current free cash flow
• 129.01% of average free cash flow.

Exxon has been increasing its dividend for 36 consecutive years. I do not think that this is compromised by these fairly high ratios, especially since the fundamentals are improving as we will see below. On the other hand, the potential for appreciation is obviously quite low. If we look at the last five years, we see that the dividend has only increased by 3.65% per year.

Balance sheet & result

While the dividend is growing, cash reserves, asset values and profits have declined over the past five years (but the latter have been rising since 2016). Exxon is therefore struggling to create value for its shareholders, which is reflected in the share price, which has been on a downward slope for the past five years.

Although slightly up, liquidity is not at its best, with a current ratio of only 0.84 and a quick ratio of 0.51. However, there is no doubt that the banks will be happy to come to Exxon's rescue if necessary.

The gross margin is correct, with 31%, but slightly down. The FCF margin (5,89%) and the net margin (7,36%) are not too bad either. It is a bit the same story with profitability, since the ROA amounts to 5,94% (up), the CFROA to 10.4% and the ROE to 10.7%.

Debt is perfectly under control since it represents only 0.2 times equity. Long-term debt amounts to only 5.93% of assets (down). The entire debt could also be wiped out in less than four years based on the average FCF.

Although the number of shares in circulation fell slightly between 2017 and 2018, it has increased slightly since 2014. We can roughly say that it is still stable in the long term, which is a good thing for shareholders who avoid any dilution of their assets.

Conclusion

With fairly good profitability and margins, as well as debt that is completely under control, Exxon is a solid company, despite deficient current liquidity. Although some fundamentals such as profit and cash flow have not been very well oriented over the last five years, they seem to be improving. The F-Score (Piotroski) confirms this with a score of 8 (out of 9). The Z-Score (Altman), with 4.03, is in the green zone. Exxon is therefore not ready to go bankrupt, but we already suspected that a little.

The price is quite decent, but perhaps still a bit too expensive relative to fundamentals. It is mainly in terms of FCF that this is problematic, as the company has had to spend an average of 121% of its profit on capital expenditure in recent years.

So for now I consider Exxon to be an interesting stock, in recovery, and therefore one to watch. But I am not a buyer at the moment.