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ExxonMobil Stock at a Premium: Opportunity or Reason to Stay Cautious?
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Key Takeaways
ExxonMobil trades at 9.16x EV/EBITDA, above the industry's 5.89x average and peers BP and Chevron.
High oil prices and low-cost production in the Permian and Guyana continue to support ExxonMobil's outlook.
ExxonMobil's 13.73% debt-to-capital ratio and 43 years of dividend hikes support holding despite valuation.
ExxonMobil Holdings 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 9.16x 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 5.89x. BP plc (BP - Free Report) and Chevron (CVX - Free Report) are trading at 2.93x and 8.04x, 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.
High Oil Price a Boon to XOM’s Operations?
West Texas Intermediate (“WTI”) crude is trading at more than the $95-per-barrel mark. The high prices are being driven by intensifying conflicts in the Middle East. The U.S. Energy Information Administration (“EIA”) in its latest short-term energy outlook projected WTI at $84.65 per barrel this year, higher than $65.40 last year. A highly favorable oil pricing environment is likely to continue supporting ExxonMobil’s exploration and production activities, similar to BP and Chevron.
Importantly, upstream operations generate the majority of earnings for XOM. The company 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 new drilling techniques and artificial intelligence to boost and optimize production volumes at lower cost structures.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Robust production from both assets has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
XOM’s Solid Balance & Dividend Commitment
Investors should also keep in mind that XOM has a strong balance sheet that can support it during an unfavorable business environment. The debt-to-capitalization of ExxonMobil is 13.73%, significantly lower than 28.51% 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 reflected in the price chart. In the past year, XOM has jumped 46%, outpacing the industry’s 45.1% growth. BP and CVX, two other integrated players in the same space, have gained 31.4% and 35.5%, respectively.
Image Source: Zacks Investment Research
Despite all the positive developments and elevated crude prices, it might not be the ideal time for investors to bet on ExxonMobil, as its valuation appears pricey. However, those who have already invested may hold the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
Image: Bigstock
ExxonMobil Stock at a Premium: Opportunity or Reason to Stay Cautious?
Key Takeaways
ExxonMobil Holdings 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 9.16x 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 5.89x. BP plc (BP - Free Report) and Chevron (CVX - Free Report) are trading at 2.93x and 8.04x, 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.
High Oil Price a Boon to XOM’s Operations?
West Texas Intermediate (“WTI”) crude is trading at more than the $95-per-barrel mark. The high prices are being driven by intensifying conflicts in the Middle East. The U.S. Energy Information Administration (“EIA”) in its latest short-term energy outlook projected WTI at $84.65 per barrel this year, higher than $65.40 last year. A highly favorable oil pricing environment is likely to continue supporting ExxonMobil’s exploration and production activities, similar to BP and Chevron.
Importantly, upstream operations generate the majority of earnings for XOM. The company 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 new drilling techniques and artificial intelligence to boost and optimize production volumes at lower cost structures.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Robust production from both assets has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
XOM’s Solid Balance & Dividend Commitment
Investors should also keep in mind that XOM has a strong balance sheet that can support it during an unfavorable business environment. The debt-to-capitalization of ExxonMobil is 13.73%, significantly lower than 28.51% 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 reflected in the price chart. In the past year, XOM has jumped 46%, outpacing the industry’s 45.1% growth. BP and CVX, two other integrated players in the same space, have gained 31.4% and 35.5%, respectively.
Despite all the positive developments and elevated crude prices, it might not be the ideal time for investors to bet on ExxonMobil, as its valuation appears pricey. However, those who have already invested may hold the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.