Exxon Mobil Corp (XOM, Financial) experienced a daily loss of -1.58%, and a 3-month gain of 11.71%. With an Earnings Per Share (EPS) of 12.5, the question arises: Is the stock modestly overvalued? This article embarks on a valuation analysis journey to answer this question, providing a detailed examination of Exxon Mobil's intrinsic value.
Company Introduction
ExxonMobil is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2022, it produced 2.4 million barrels of liquids and 8.3 billion cubic feet of natural gas per day. With reserves of 17.7 billion barrels of oil equivalent, 65% of which were liquids, Exxon Mobil stands as the world's largest refiner with a total global refining capacity of 4.6 million barrels of oil per day. Additionally, it is one of the world's largest manufacturers of commodity and specialty chemicals.
With a stock price of $117.58 per share and a market cap of $468.70 billion, Exxon Mobil's valuation compared to its GF Value of $103.38 suggests that the stock is modestly overvalued. This comparison provides a foundation for a deeper exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. This method is based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally trade at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Exxon Mobil (XOM, Financial) stock is estimated to be modestly overvalued based on the GuruFocus Value calculation. This suggests that the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, 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 provide a good initial perspective on the company's financial strength. Exxon Mobil has a cash-to-debt ratio of 0.71, which ranks better than 55.03% of 1034 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Exxon Mobil's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Exxon Mobil has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $364.10 billion and Earnings Per Share (EPS) of $12.5. Its operating margin is 16.67%, which ranks better than 63.31% of 984 companies in the Oil & Gas industry. Overall, the profitability of Exxon Mobil is ranked 7 out of 10, which indicates fair profitability.
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 15.9%, which ranks better than 60.79% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 37%, which ranks better than 75.3% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Exxon Mobil's return on invested capital is 16.08, and its cost of capital is 8.8.
The historical ROIC vs WACC comparison of Exxon Mobil is shown below: 
Conclusion
In conclusion, the stock of Exxon Mobil (XOM, Financial) is estimated to be modestly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 75.3% of 830 companies in the Oil & Gas industry. To learn more about Exxon Mobil stock, you can check out its 30-Year Financials here.
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