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					1       Exxon Mobil Corporation.




    Ticker:                         XOM
    Sector:                         Energy
    Industry:                       Oil & Gas

                                                               RECOMMANDATION
    Recommendation: Hold
                                                                           HOLD
    Pricing
                                                Exxon Mobil Corporation is a conglomerate with well
    Closing Price (09/24)              $61.75   diversified business, both in segments and geography. It is an
    52-wk High                         $76.54   industry leader in almost every aspect of the energy and
    52-wk Low                          $55.94   petrochemical business, operating facilities or market
                                                products in most of the world’s countries and explore for oil
    Market Data
                                                and natural gas on six continents. As the superior capital
    Market Cap1                     $315.95B    allocator and operator and few remaining firms with an AAA
    Trading Vol.                    25.15M      credit rating, Exxon Mobil showed the strong performance in
    Total Assets                    $291,068M   the first two quarters of 2010. However, the higher
                                                correlation with current economic uncertainty may drag its
    Total Liabilities               $150,896M   future performance down.
    Valuation
    EPS(09)                            $3.98                POMPANY DESCRIPTION
          2
    P/E                                11.85
    P/Sales                             0.87    Exxon Mobil Corporation operates petroleum and
    P/Books                             2.23    petrochemical businesses on a worldwide basis. In late 1999,
    P/EBITDA                            6.34    the FTC allowed Exxon and Mobil to reunite, creating
                                                Exxon Mobil Corp. The company’s operations include
    P/CF                                7.40
                                                exploration and production of oil and gas, electric power
    Div. Yield                          2.80%   generation, and coal and minerals operations. Exxon Mobil
    Profitability & Effectiveness               also manufactures and markets fuels, lubricants, and
                                                chemicals. Over the last 125 years ExxonMobil has evolved
    ROA(06/30)                         9.60%
                                                from a regional marketer of kerosene in the U.S. to the
    ROE(06/30)                         20.00%   largest publicly traded petroleum and petrochemical
    Profit Margin                      31%      enterprise in the world. Today they operate in most of the
    Oper Margin                        12.5%    world's countries and are best known by familiar brand
                                                names: Exxon, Esso and Mobil.
    Net Margin                         6.9%
    Analyst:                                    In 2009, it produced 2.4 million barrels of oil and 9.3 billion
    Yuhui Qian                                  cubic feet of natural gas a day. At year-end 2009, reserves
    Email: yqvcd@mail.missouri.edu              stood at 14.95 billion boe (plus 8.03 billion for equity
                                                companies), 62% of which are oil. The company is the

    1
        Average of Bloomberg and Morningstar
    2
        Bloomberg

                                                                                         MU IFM- 09/27/2010
2       Exxon Mobil Corporation.



    world's largest refiner, with 37 refineries, and it is one of the world's largest manufacturers of
    commodity and specialty chemicals.



                            BUSINESS SEGMENTS AND OPORATIONS

    Exxon Mobil’s revenues are generated from 3 distinct operational segments consisting of upstream
    operations, downstream operations, and chemical operations. ExxonMobil's businesses include oil
    and natural gas exploration and production (8% of 2009 sales; 81% of 2009 segment earnings);
    refining and marketing (83%; 8%); chemicals (9%; 11%); and other operations, such as electric
    power generation, coal and minerals. At year-end 2009, the company had an ownership interest in 37
    refineries with 6.23 million barrels per day (b/d) of atmospheric distillation capacity (U.S. 32%,
    Europe 28%, Asia Pacific 27%, Canada 8%, and Middle East/Latin America/Other 5%). The
    following pages breakdown these operations further.3


     Upstream Operations

    Upstream operations consist of exploration, development, produce and gas and power marketing.
    Earnings in this segment during 2009 totaled $17.1 billion with a return on average capital of 23
    percent. Exxon produced liquids and natural gas for sale of 3.9 million oil-equivalent barrels per day.
    Exploration activities span the entire globe and include geographic locations such as Canada, U.S.
    Gulf of Mexico, Turkey, Vietnam, Norway, and many more. The company possesses massive
    resources, adding 2.9 billion oil-equivalent barrels to the resource base in 2009, bringing the total
    resource base to 23.3 billion oil-equivalent barrels. This equates to 16 years of reserves life at current
    production rates. Proved reserves make up 31 percent of this resource base.


     Downstream Operations

    Downstream operations consist of refining & supply, fuels marketing, and lubricants and specialties.
    Exxon’s refining and marketing business was severely affected by the recession reflected by lower
    product demand because of the economic downturn. Exxon is the largest global refiner, manufacturer
    of lube bases tocks, and supplier of petroleum products.


     Chemical Operations

    Exxon’s chemical operations capitalize on their core competencies and benefit from their integration
    across different sectors of Exxon’s operations. Selected investment strategies in advanced projects
    have led to industry leading performance. Earnings in this operational sector for 2009 totaled $2.3
    billion and are complemented with returns on average capital employed of 14 percent.

    3
        XOM 10-K 2009.

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3   Exxon Mobil Corporation.




                               MU IFM- 09/27/2010
4       Exxon Mobil Corporation.




                 2009 Earnings by Segments                        2009 Earnings by Regions
                   Chemical
                     11%
                                                                                               United
        Downstre
                                                                                               States
          am
                                                                                                17%
          8%


                                   Upstream                            Non-U.S.
                                     81%                                 83%




                              Figure 1                                       Figure 2




                                              MANAGEMENT
    Rex Tillerson is chairman and CEO of Exxon, a role he assumed in 2006. Previously, he served as
    president after spending his career with Exxon, beginning in 1975 as a production engineer. Tillerson
    is likely to continue a disciplined capital allocation strategy and deliver the high returns that his
    predecessor did. Total compensation for Tillerson was only $27 million in 2009, which is reasonable,
    considering the size of the company and his peers' compensation. Exxon has a typical compensation
    structure consisting of a salary, cash bonus, and equity awards. Performance is not evaluated by
    typical quantitative measures but by the executives' performance relative to achievement of the
    company's long-term goals. Exxon gets credit for delaying 50% of bonus payment until later periods'
    earnings targets are met, and requiring longer vesting periods for equity awards. Low executive
    equity ownership relative to total shares outstanding is understandable, considering the size and
    history of the company.

    Shareholder return is a focus of management. Over the past five years, Exxon paid $39 billion in
    dividends and repurchased $135 billion worth of stock, reducing shares outstanding by 23%.4




                                                  Table 1

    4
        Morningstar

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5       Exxon Mobil Corporation.




                                          PERFORMANCE
    As the table below shows, upstream earnings for 2009 were $17,107 million, down $18,295 million
    from 2008, including the absence of an after−tax special gain in 2008 of $1,620 million from the sale
    of a natural gas transportation business in Germany. Lower crude oil and natural gas realizations
    reduced earnings $15.2 billion. Downstream earnings were $1,781 million, down $6.4 billion from
    2008. Weaker margins reduced earnings $5.1 billion. Lower divestment activity reduced earnings
    about $1.0 billion. Volumes decreased earnings approximately $300 million. Petroleum product sales
    of 6,428 kbd decreased 333 kbd, mainly reflecting asset divestments and lower demand. Earnings
    declined $648 million versus 2008 to a total of $2,309 million. Weaker margins reduced earnings by
    $340 million, mostly in commodities. Lower volumes decreased earnings $190 million. All other
    items, including unfavorable foreign exchange impacts, reduced earnings $115 million. Prime
    product sales of 24,825 kt (thousands of metric tons) decreased 157 kt from 2008. Prime product
    sales are total chemical product sales, including ExxonMobil’s share of equity−company volumes
    and finished−product transfers to the downstream business. U.S. Chemical earnings of $769 million
    increased $45 million. Non−U.S. Chemical earnings were $1,540 million, down $693 million.

    Table 2 2009 Financial Performance by Segments5




                                                     Table 2




    5
        XOM,2010 10-K.

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6       Exxon Mobil Corporation.




                                                                                  6

                                                            Figure 3



                                                 3-Year Functional Earnings
                            40,000
                            35,000
                            30,000
          All IN MILLIONS




                            25,000
                            20,000
                            15,000
                            10,000
                             5,000
                                 0
                            -5,000
                                                                                        Corporate and
                                      Upstream         Downstream      Chemical
                                                                                          financing
                               2009    17,107            1,781          2,309              -1,917
                               2008    35,402            8,151          2,957              -1,290
                               2007    26,497            9,573          4,563                -23

                                                            Figure 4




    6
        XOM 2009 Annual Report

                                                                                      MU IFM- 09/27/2010
7       Exxon Mobil Corporation.




                                             3-Year Earnings by Regions
                                40,000
                                35,000
          ALL IN MILLIONS




                                30,000
                                25,000
                                20,000
                                15,000
                                10,000
                                 5,000
                                     0
                                            2009                  2008                2007
                            United States   3,509                 8,616              10,171
                            Non-U.S.        17,688                37,894             30,462

                                                       Figure 5




                                                                                                 7

                                                       Table 3


    ExxonMobil reported an 85% rise in second-quarter earnings compared with the same period a year
    ago, thanks to higher crude-oil price realizations, improved refining margins, and strong chemical
    results. Earnings also benefited from an 8.4% increase in total production from the year-ago quarter.
    Production gains came primarily from the continued ramp-up of ExxonMobil's liquefied natural gas
    facilities in Qatar and increased European demand. As a result, natural gas volume grew 24.7% from
    the year-ago period. However, oil volume fell almost 1% as natural field declines offset higher
    volume in Qatar and Kazakhstan. Through the first half of the year, production volume increased 6.4%
    from the year-ago period, led by gains in natural gas volume of 19.2%. Benefiting from higher price
    realizations as well as increased production volume, second-quarter upstream earnings rose 40%
    from the second quarter of 2009. The chemical and downstream segments also showed significant
    improvement during the quarter. Chemical segment earnings surged 273% from the quarter a year
    ago, thanks to improved margins and higher volume as a result of stronger global demand. The
    downstream segment also posted an impressive turnaround during the quarter. Improved global
    refining margins resulted in a 138% increase in earnings compared with the same quarter a year
    earlier, despite lower volume due to continued weak demand. The U.S. downstream segment marked
    a significant reversal by posting earnings of $440 million after posting losses for the past four
    quarters.8

    7
        ExxonMobil Annual Report 2009
    8
        Morningstar

                                                                                  MU IFM- 09/27/2010
8        Exxon Mobil Corporation.




                                                        9

                                    Table 4                 Figure 6 Morningstar Investment Style
     The following chart shows the stocks comparison compared to the S&P 500 and other main
    competitors.10




                                              Chart 1
    So far in the YTD, XOM price has been down by 10%, chart 1 shows a weaker trend compare to

    9
         S&P Estimates
    10
          Yahoo! Finance.

                                                                              MU IFM- 09/27/2010
9        Exxon Mobil Corporation.



    most of Exxon’s peers in the industry, expect BP oil due to the oil spill in the Gulf of Mexico.
    However, as Table 5 and 6 below shows, Exxon Mobil’s fundamental condition is still strong,
    compare to most of its direct competitors, as Sales and Income are significantly higher than peers.
    ROA and Asset turnover is above the industry average and market level; whereas P/E ratio is lower
    than the industry and market, showing positive signs for Exxon Mobil.




                                                    Table 5 Comparison to Peers11

                                                          XOM              Industry             S&P 500
    ROA %                                                 9.60               9.30                  8.50
    ROE %                                                 20.00              20.00                22.20
    Net Margin %                                          6.90               8.70                 12.70
    Asset Turnover                                        1.40               1.10                  0.80
    P/E                                                   11.80              12.80                15.10
    Forward P/E                                           9.30                 -                  13.50
    P/B                                                   2.20               1.80                  2.00
    P/CF                                                  7.40               7.00                  7.00
    P/S                                                   0.80               0.80                  1.20
    Fwd Div Yld %                                         2.86                 -                   2.01

                                             Table 6 Comparison to Industry and Market12



                                     REASONS TO BE BULLISH ON XOM

     Financial Health
    As one of the few remaining firms with an AAA credit rating13, ExxonMobil’s financial health is
    beyond reproach. Cash flow from operations remains sufficient to finance capital expenditures while
    increasing dividend payments and buying back stock. More important, the large cash position and
    access to cheap debt give the company resources to make opportune acquisitions.




    11
         Morningstar Estimates
    12
         Morningstar Stock Analysis Report
    13
         Morningstar Credit Rating

                                                                                           MU IFM- 09/27/2010
10        Exxon Mobil Corporation.




                                             Table 3 Financial Health14


      Well Diversification
     As we described earlier in the report, Exxon Mobil is a conglomerate with well diversified business,
     both in segments and geography. It is an industry leader in almost every aspect of the energy and
     petrochemical business, operating facilities or market products in most of the world’s countries and
     explore for oil and natural gas on six continents. More than 80% of its earnings are generated from
     non-U.S. markets. With high-performing operations and global integration, Exxon is one of the
     best-positioned firms to weather a drop in commodity prices15. The diversity of its operations and a
     vast geographic footprint offer protection against regional economic weakness.



                                     REASONS TO BE BEARISH ON XOM


      Economic Uncertainty
     The demand for energy and petrochemicals correlates closely with general economic growth rates.
     The occurrence of recessions or other periods of low or negative economic growth will typically
     have a direct adverse impact on results. 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 Exxon Mobil.

     The US economy was more sluggish in the second quarter than was initially projected. The original
     report for the second quarter estimated the annualized growth rate to be 2.4 percent, but the rate was
     adjusted to 1.6 percent. While the growth rate was less than was initially expected, the GDP did
     increase more than the 1.3 percent that polled economists were predicting. The 1.6 percent growth
     rate follows a stronger first quarter where growth was 3.7 percent.16 As the economy continues its

     14
          Morningstar Estimates
     15
          Morningstar stock Report
     16
       Tom Barkley and Darrell Hughes, “GDP Growth Revised Downward.” 27 Aug 2010, Wall Street Journal. 28
     Aug 2010 <http://online.wsj.com/article/>.
     SB10001424052748704147804575455270227305744.html?mod=djemalertNEWS>.

                                                                                      MU IFM- 09/27/2010
11        Exxon Mobil Corporation.



     slow recovery, the chances of a recurring recession increase. The threat of a double-dip recession
     negatively impacted Exxon’s expected profitability and future growth.



      Government and Political Factors
     ExxonMobil’s results can be adversely affected by political or regulatory developments affecting
     operations. As nations become more protective of their natural resources, the company will find it
     increasingly difficult to increase production and book reserves.

     For a company with global operations, geopolitical risk is always an issue.17 Recent events in Russia,
     Nigeria, and Venezuela underscore the risk associated with doing business in those countries. These
     risks will only become greater as Exxon expands its global production portfolio through partnerships
     with NOCs.

     Access limitations
     A number of countries limit access to their oil and gas resources, or may place resources off-limits
     from development altogether. Restrictions on foreign investment in the oil and gas sector tend to
     increase in times of high commodity prices, when national governments may have less need for
     outside sources of private capital. Many countries also restrict the import or export of certain
     products based on point of origin.

     Restrictions on doing business
     As a U.S. company, Exxon Mobil is subject to laws prohibiting U.S. companies from doing business
     in certain countries, or restricting the kind of business that may be conducted. Such restrictions may
     provide a competitive advantage to their non-U.S. competitors unless their own home countries
     impose comparable restrictions.

     Regulatory and litigation risk
     Even in countries with well-developed legal systems where Exxon Mobil does business, they are
     exposed to changes in law that could adversely affect results, such as, increases in taxes or
     government royalty rates, price controls, changes in environmental regulations or other laws that
     increase cost of compliance. Another concern is the adoption of regulations mandating the use of
     alternative fuels or uncompetitive fuels.



                                                VALUATION
     I used the Two-Stage Discounted Free Cash Flow Model to find the intrinsic value of Exxon Mobil
     Corporation. I calculated the discount rate of 8.98% by using WACC which considers both the cost
     of equity and cost of debt. I used CAPM to determine the cost of equity, shows as follow:

                               Cost of Equity = 3.74%+0.845*(10.59%-3.74%) = 9.49%

     17
          Morningstar Report

                                                                                     MU IFM- 09/27/2010
12        Exxon Mobil Corporation.




     I adopted the cost of debt and weight of equity and debt from Bloomberg. Beta was found in
     Bloomberg as the 10-year adjusted Beta. The risk free rate of 3.74 percent is the mean annual interest rate
     of US treasury bills going back to 192818, while the market return rate of 10.59 percent is the average growth
     rate of the S&P 500 index since 1871.19 While these numbers may fluctuate in the short-term, S&P 500 and
     Treasury bill rates are currently depressed, these averages will likely be maintained in the long-run.

     Net Income and Depreciation and Depletion values were taken from the 2009 10-K report.

     For the 10-year Average Increase in Working Capital, I firstly calculated every-year working capital
     by subtracting current liabilities from current assets. Then I calculated the change in working capital
     from previous year to later year. Finally, I calculated the average change in working capital which is
     $107.33million. For the 10-year Average Capital Expenditure, I adopted every-year Capital
     Expenditure from XOM’s annual reports, and then averaged them to get the value of
     $14,121.40million.

     In the first stage, I used 5% growth rate which was estimated for 2010, 2011 and 2012 fiscal years.
     Then I conservatively decreased the growth rate to 4% for the later years.

     In the second stage, we used 3.41% which is average percent change from preceding period in Real
     Gross Domestic Product since 1930, as the growth rate of perpetuity.

     I find the intrinsic value of Exxon Mobil Corp. is $68.99 per share, which is higher than the current
     price of $61.75.

     Table N. DCF Sensitivity Analysis
                                 Discount Rate                 7%              8%      8.98%       10%         11%
     FCF (All In Millions)
                         15000                               93.47          73.52      60.99      51.89       45.39
                         16000                               99.71          78.42      65.06      55.34       48.41
                         16968                             105.74           83.16      68.99      58.69       51.34
                         18000                             112.17           88.22      73.19      62.26       54.46
                         19000                               118.4          93.12      77.25      65.72       57.49




     18
          http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
     19
           http://www.moneychimp.com/features/market_cagr.htm

                                                                                               MU IFM- 09/27/2010
13    Exxon Mobil Corporation.




                                             CONCLUSION
     ExxonMobil sets itself apart among the other super majors as a superior capital allocator and
     operator. With a majority of the world's remaining resources in government hands, opportunities for
     the company to grow its large production base are limited. After the financial crisis in 2008, Exxon
     Mobil Corporation showed a strong recovery in the first 2 quarters of 2010. Through a relentless
     pursuit of efficiency, technology, development, and operational improvement, it consistently delivers
     higher returns on capital relative to peers. However, the performance of Exxon Mobil is highly
     correlative with global economic condition. The increasing probability of “double-dip” recession
     after the second quarter negatively affects the expected profitability of Exxon Mobil.




                                                                                    MU IFM- 09/27/2010
14   Exxon Mobil Corporation.




                                Appendix A




                                             MU IFM- 09/27/2010
15   Exxon Mobil Corporation.




                                MU IFM- 09/27/2010
16   Exxon Mobil Corporation.




                                MU IFM- 09/27/2010
17   Exxon Mobil Corporation.



                                                                                                    Appendix B
     Two-Stage Discounted Free Cash Flow Valuation Model
     assuming discount rate (k) of                                                          8.98%

     Free Cash Flow in 2009:                                             (In millions)
     Net Income                                          $                        19,280.00
     Average Increase in Working Capital (subtract)      $                           (107.33)
     Depreciation and Depletion (add)                    $                        11,917.00
     Amortization (add)                                  $                                      -
     Average Capital Expenditures (subtract)             $                    (14,121.40)
     Free Cash Flow (Owner Earnings)                     $                      16,968.27
     FIRST STAGE                                        Year:
                                                            2010                 2011             2012         2013              2014              2015             2016             2017             2018              2019
     Prior Year Free Cash Flow                        $ 16,968.3           $17,816.7        $18,707.5    $19,642.9        $ 20,428.6        $ 21,245.7       $ 22,095.6        $22,979.4       $ 23,898.6        $ 24,854.5
     First Stage Growth Rate (add)                          5.0%                 5.0%             5.0%         4.0%              4.0%              4.0%             4.0%             4.0%             4.0%              4.0%
     Free Cash Flow                                   $ 17,816.7           $18,707.5        $19,642.9    $20,428.6        $ 21,245.7        $ 22,095.6       $ 22,979.4        $23,898.6       $ 24,854.5        $ 25,848.7
     Discounted Value per annum                        $17,816.7             $17,166.5       $16,540.1    $15,784.7          $15,063.8         $14,375.9        $13,719.4       $13,092.8         $12,494.9         $11,924.3

                                                                         <----- This number represents the sum of   present values of the free cash flow that we expect in the first stage (which in this case is ten years
     Sum of present value of owner earnings               $147,979.1     long)
     SECOND STAGE
     Residual Value

     Free Cash Flow in year 10                        $                25,848.7
     Second Stage Growth Rate (g) (add)                                  3.41%

     Free Cash Flow in year 11                        $             26,730.1
     Capitalization rate (k-g)                                        5.57%
     Value at end of year 10                          $          480,170.33

     Present Value of Residual                                  $203,261.27
     Intrinsic Value of Company                                 $351,240.36

     Shares outstanding assuming dilution                                 5091
     Intrinsic Value per share                                          $68.99
     Current Price                                                      $61.75
                                                                        11.73%




                                                                                                                                                   MU IFM- 09/27/2010
18     Exxon Mobil Corporation.




     (ALL IN MILLIONS)
                                        2009           2008         2007        2006        2005        2004        2003         2002    2001    2000
     Working Capital                     3,174        23,166       27,651      26,960      27,035      17,396       7,574        5,116   5,567   2,208
     Change In WC                       (19,992)      (4,485)        691        (75)       9,639       9,822        2,458        (451)   3,359
     Average Change In WC                 107

     CapEx                               22491         19318       15387       15462        13839       11986       12859        11437   9989    8446
     Average CapEx                      14121.4



     Data above is according to Annual Reports 1999-2009 which are directly downloaded from Exxon Mobil Corporation's website.




                                                                                                                                                 MU IFM- 09/27/2010

				
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