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Is XOM Worth Betting on at its Premium Price or Should Investors Wait?
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Key Takeaways
XOM trades at 9.92x EV/EBITDA vs. the industry's 6.42x, raising entry-point questions.
XOM's Permian tech may lift recoveries up to 20% as WTI tops $63 to $69 breakeven.
XOM targets 1.8MM oil-equivalent bbl this year. Debt-to-cap is 15.4% with 43 years of hikes.
Exxon Mobil Corporation (XOM - Free Report) is trading at a premium, meaning investors are willing to pay more for the stock. On a relative basis, the stock is trading at a 9.92x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 6.42x. BP plc (BP - Free Report) and Chevron (CVX - Free Report) are trading at 3.20x and 9.72x, respectively.
Image Source: Zacks Investment Research
Given that the integrated energy giant is trading at a premium, what should investors do now? Before getting into it, let’s delve into the company’s fundamentals and overall business environment.
XOM's Permian Advantage: Low Breakeven, Rising Production
ExxonMobil has a massive footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing lightweight proppant technology and hence is capable of boosting its well recoveries by up to as much as 20%.
Let’s delve a little deeper into why operating in the Permian, the most prolific basin in the United States, is going to be the game-changer for the integrated energy giant. According to the data from the Federal Reserve Bank of Dallas, the breakeven price for new wells in the Midland, a sub-basin of the Permian, is $69 per barrel. For Delaware, another sub-basin, the Federal Reserve Bank of Dallas estimated the price at $63 per barrel.
With West Texas Intermediate (“WTI”) crude trading at more than $90 per barrel, XOM’s operations in the Permian are likely going to be lucrative as the breakeven costs are lower. Investors should note that on the first-quarter earnings call, XOM mentioned that it is staying aligned with its plan to grow production in its most prolific basin to 1.8 million oil-equivalent barrels this year. Thus, high price and increased production are expected to aid XOM’s top and bottom lines.
Robust Balance & Dividend Commitment of XOM
Investors should also keep in mind that XOM has a strong balance sheet, on which it could rely during an unfavorable business environment. The debt-to-capitalization of ExxonMobil is 15.4%, which is significantly lower than 29.6% of the industry’s composite stocks.
Image Source: Zacks Investment Research
Coming to the integrated energy giant’s dividend commitment story, over the past 43 years, ExxonMobil has been rewarding shareholders with annual dividend hikes at an average rate of 5.8%.
What Should Investors Do Now?
The positive developments are getting reflected in the price chart. In the past year, XOM has jumped 42.8%, outpacing the industry’s 42.1% growth. BP and CVX, two other integrated players in the same space, have gained 45.9% and 33.1%, respectively.
Price Chart
Image Source: Zacks Investment Research
Given this backdrop, although the company’s overall business outlook remains favorable, it may not be ideal for investors to buy the stock at an overvalued price. Hence, investors should wait for a more attractive entry point. However, those who have already invested may continue to retain the stock, which carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is XOM Worth Betting on at its Premium Price or Should Investors Wait?
Key Takeaways
Exxon Mobil Corporation (XOM - Free Report) is trading at a premium, meaning investors are willing to pay more for the stock. On a relative basis, the stock is trading at a 9.92x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 6.42x. BP plc (BP - Free Report) and Chevron (CVX - Free Report) are trading at 3.20x and 9.72x, respectively.
Given that the integrated energy giant is trading at a premium, what should investors do now? Before getting into it, let’s delve into the company’s fundamentals and overall business environment.
XOM's Permian Advantage: Low Breakeven, Rising Production
ExxonMobil has a massive footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing lightweight proppant technology and hence is capable of boosting its well recoveries by up to as much as 20%.
Let’s delve a little deeper into why operating in the Permian, the most prolific basin in the United States, is going to be the game-changer for the integrated energy giant. According to the data from the Federal Reserve Bank of Dallas, the breakeven price for new wells in the Midland, a sub-basin of the Permian, is $69 per barrel. For Delaware, another sub-basin, the Federal Reserve Bank of Dallas estimated the price at $63 per barrel.
With West Texas Intermediate (“WTI”) crude trading at more than $90 per barrel, XOM’s operations in the Permian are likely going to be lucrative as the breakeven costs are lower. Investors should note that on the first-quarter earnings call, XOM mentioned that it is staying aligned with its plan to grow production in its most prolific basin to 1.8 million oil-equivalent barrels this year. Thus, high price and increased production are expected to aid XOM’s top and bottom lines.
Robust Balance & Dividend Commitment of XOM
Investors should also keep in mind that XOM has a strong balance sheet, on which it could rely during an unfavorable business environment. The debt-to-capitalization of ExxonMobil is 15.4%, which is significantly lower than 29.6% of the industry’s composite stocks.
Coming to the integrated energy giant’s dividend commitment story, over the past 43 years, ExxonMobil has been rewarding shareholders with annual dividend hikes at an average rate of 5.8%.
What Should Investors Do Now?
The positive developments are getting reflected in the price chart. In the past year, XOM has jumped 42.8%, outpacing the industry’s 42.1% growth. BP and CVX, two other integrated players in the same space, have gained 45.9% and 33.1%, respectively.
Price Chart
Given this backdrop, although the company’s overall business outlook remains favorable, it may not be ideal for investors to buy the stock at an overvalued price. Hence, investors should wait for a more attractive entry point. However, those who have already invested may continue to retain the stock, which carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.