First Look at ExxonMobil (XOM). Don’t buy until after double-dip recession.

A recent article on Guruwatch.com listed ExxonMobil as one of the recommend dividend stocks for 2012.  I think this is bad advice at the current price $85.18 and dividend yield of 2.2%.  Read on to find out why.

http://www.gurufocus.com/news/170209/5-highdividend-yielders-for-2012

ExxonMobil (XOM)

Price: $85.18

Shares: 4.71 billion

Market capitalization: $401.42 billion

What does the company do – Exxon Mobil Corporation (Exxon Mobil) 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 a number of divisions and 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. In October 2011, Cosan SA Industria e Comercio bought the distribution assets of Exxon Mobil in Bolivia, Paraguay and Uruguay. In January 2012, Apache Corporation acquired Exxon Mobil’s Mobil North Sea Limited assets including the Beryl field and related properties.

Morningstar’s take – ExxonMobil sets itself apart among the other supermajors as a superior capital allocator and operator. Through a relentless pursuit of efficiency, technology, development, and operational improvement, it consistently delivers higher returns on capital relative to peers. With a majority of the world’s remaining resources in government hands, opportunities for the company to expand its large production base are limited. However, we believe ExxonMobil’s experience and expertise, particularly with large projects, should allow it to successfully compete for resources.

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Preferred stock: none.

Bonds: $786.8 million outstanding.  That is a very small amount for a company as large as ExxonMobil.  The bonds are not a threat to the dividend.

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DIVIDEND RECORD: Dividend grower since 1987.  Their quarterly dividend has grown from $0.11 in 1987 to $0.47 in 2012.  That is a 327% gain over 25 years or it can be expressed as a 13.1% straight-line gain per year (not compounded)

Dividend: $0.47

Dividend yield: 2.2% ($1.88 annual dividend / $85.18 share price)

Dividend payout: 22% using 2011 EPS of $8.42 –OR- 25% using average adjusted earning power of $7.50 per share.  XOM doesn’t believe in paying out a large percentage of its profits to shareholders or they would increase the percentage of the dividend payout.  The dividend payout has averaged 27% since 2001 with a max of 55% in 2001.  The next highest payout was in 2008 when the stock price crashed.

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EARNING POWER: $7.50 per share @ 4.71 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

2007

$7.28

$40,610 M

5,517 M

$8.62

2008

$8.66

$45,220 M

5,194 M

$9.60

2009

$3.98

$19,280 M

4,848 M

$4.09

2010

$6.22

$30,460 M

4,897 M

$6.47

2011

$8.42

$41,060 M

4,875 M

$8.72

Five year average adjusted earnings per share is $7.50

Consider contrarian buying below $60.00 (8 times average adjusted EPS)

ExxonMobil (XOM) is currently trading at 11.4 times average adjusted EPS.  This is stock is value priced.

Consider value buying below $90.00 (12 times average adjusted EPS)

Consider speculative selling above $150.00 (20 times average adjusted EPS)

BALANCE SHEET – The high price to book value ratio should keep you away from XOM.  The current and quick ratios show that XOM has little current assets to cover current liabilities.  The company’s working capital has eroded over the years.  It is now negative for several years.  That isn’t a good sign.  This means that the company had to get $5 billion dollars from somewhere other than operations to meet its current liabilities.

Book value per share: $32.78

Price to book value ratio: 2.6 (under 1.0 is good)  Buyers of ExxonMobil at today’s price of $85.18 are paying a huge premium over book value per share.

Current ratio: 0.94 latest quarter (over 2.0 is good)

Quick ratio: 0.66 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.06 (lower is better)

Percentage of total assets in plant, property, and equipment: 64.8% (the higher the better)  Current assets 22%, long term assets 10.3%, and intangibles 2%

CONCLUSION – The best time to buy ExxonMobil in recent years was in June 2010 when oil was at $71 per barrel.  This is interesting because oil bottomed in 2009 below $46 per barrel.  XOM is a decent dividend grower historically.  Their yield has never been very high, but since they only payout an average of 27% the dividend has never been threatened.  The stock is currently in value territory at 11.4 times average adjusted earnings.  The only thing that I don’t like about XOM is the high book value ratio per share and the weak current and quick ratios.  The coming worldwide double dip recession will drop the price of oil from its current price of around $100 per barrel.  That event will hurt XOM’s earnings and the price will drop like it did in 2009 – 2010.  I think you will have an opportunity to buy XOM between $60 – $53 again in the next two years.

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DISCLOSURE – I don’t own ExxonMobil (XOM).

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Published in: on April 5, 2012 at 1:30 pm  Leave a Comment  

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