What’s Old Is New Again

Proprietary Data Insights

Financial Pros Large Cap Energy Stock Searches In The Last Month

0 1 2
Rank Name Searches
#1 Exxon Mobil 2974
#2 Chevron 1239
#3 BP ”439″
#4 Conoco Phillips 339
#5 Shell 289

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Energy

What’s Old Is New Again

If you asked most investors what the hottest large-cap stock in 2021 would be next year, they probably would have told you Apple, Tesla, Amazon, or Microsoft. But all those stocks are down this year. 

In fact, the best performing large cap this year has been Exxon Mobil (XOM), which is up more than 48% year-to-date. It’s the most searched large-cap energy stock among financial pros over the last month, and for a good reason.

Exxon Mobil has a rich history, with its origins dating back to John D. Rockefeller. A little more than a decade ago, it was once the world’s most valuable publicly traded company. 

In an inflation-rich environment, the stock has performed better than most expected. It pays a healthy dividend and carries a fortress balance sheet.

But is the most widely searched energy company a good investment?

 

Exxon Mobil’s Business

Exxon Mobil(XOM) is one of the world’s largest publicly traded energy providers and chemical manufacturers. It explores for and produces crude oil and natural gas across the globe. The company operates through the following four segments: Upstream, Energy Products, Speciality Products, and Chemical Products.

Upstream energy involves exploration and drilling. Profits are tied closely to the price of crude oil and natural gas. Its upstream business did $11.4 billion in earnings during Q2 2022 compared to $4.5 billion in the first quarter of this year.  

Energy products did $5.3 billion in earnings during Q2 2022 compared to a loss of $0.2 billion in Q1 2022. Its specialty products earnings were $0.4 billion in Q2 2022 compared to $0.5 billion in Q1. Meanwhile, chemical products did $1.1 billion in Q2 2022 compared to $1.4 billion in the first quarter. 

Both of these constitute downstream operations, the sales and marketing of petroleum products.

Earnings

XOM announced earlier this year that it would like to reach net zero greenhouse gas emissions by 2050, rolling out a roadmap to achieve it. 

Last year it announced it was investing $15 billion in a low-carbon future. Considering the company’s reputation, these clean energy initiatives are essential in our current political climate.

Financials

Revenue  

XOM was once the world’s largest publicly traded company, it has now slipped to number 14 driven by the explosion in U.S. fracking that increased oil and gas supply, driving down energy prices.

The firm was doing $411.9 billion in revenue in 2014, but in 2020 its revenues were $181.5. 

However, it bounced back in 2021, with $285 billion in revenues. Its 12-month trailing revenues are $354.9 billion. Shares are up 48% year-to-date, making it one of 2022’s best investments. 

The firm has $18.86 billion in total cash and $46.88 billion in total debt. However, its current ratio of 1.1x shows the company has plenty of liquid capital to handle its short-term liabilities. Plus, much of the debt is tied to physical assets and land.

A sign of its financial strength and an attractive feature for investors is its dividend yield of 3.89%.

Valuation

Financials

Despite the massive spike in its stock price, XOM is still relatively cheap. 

The firm trades at a P/E GAAP ratio of 9.96x. Its competitors, Chevron (CVX) are at 10.3x, Shell (SHEL) is at 5.6x, BP (BP) is at N/A, and Conoco Phillips (COP) is at 9.2x. 

XOM trades at an impressive price-to-cash flow ratio of 5.9x, nearly identical to COP at 5.9x. But notably better than BP and SHEL at 3.29x. However, CVX has the best at 7.6x. 

XOM has a net operating cash flow of $63.9 billion, notably higher than its competitors: CVX at $39.8 billion, SHEL at $57.6 billion, BP at $31.1 billion, and COP at $23.6 billion. 

Profitability

Financials

At a gross profit margin of 31.99%, XOM sits below CVX at 39.9% and COP at 50.9%. 

However, it beats out SHEL at 24.9% and BP at 25.9%. XOM has a return on equity of 23%, which is lower than COP at 33.6%, but notably better than CVX at 20.2%, SHEL at 20.1%, and BP at -11.7%. Outside of BP, these businesses are well run and highly profitable. 

Growth

Growth

Growth has been a struggle for XOM over the last decade, but the firm has bounced back strongly over the last two years. The entire sector has benefited from inflation, and geopolitical tensions, helping oil prices rise. XOM has seen its revenues grow by 64% (YoY). Its EBITDA growth of 180% is incredible. Only to be bested by COP at 190%. 

Our Opinion 7/10

The Fed has made it clear that interest rates are set to go higher, which should bode well for commodities and stocks tied to them. 

Moreover,  geopolitical tensions are elevated, pushing oil prices higher. Although XOM is working towards cleaner energy initiatives, the oil and natural gas businesses remain its biggest revenue drivers. 

The company pays a handsome dividend and is a relatively safe stock in an inflationary environment. XOM has outperformed all large caps this year and should continue to do so for the next year.

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