simonkr/E+ via Getty Images
Exxon MobilNYSE:XOM) announced a blowback quarter, with some of the highest earnings in its history, and a low double-digit P/E ratio. The company announced a huge expansion of its share buyback program, which now stands at $30 billion. As you will see, there was a huge expansion of the company’s share buyback program to $30 Billion.This article discusses the company’s assets, low breakeven cost, and increased relevance. This makes it an extraordinary stock for a high inflation environment.
Asset Portfolio
Exxon Mobil’s global asset portfolio is one of the most unusual and large-scale.
Exxon Mobil Investor Presentation
Exxon Mobil’s strong portfolio of assets is demonstrated by the company’s recent More than 1 billion barrels of oil reserves addedThrough 3 new discoveries, the company has added to its Guyana assets. It has the largest permian basin development, and it has a unique portfolio of assets with large owned acreage.
The company’s efficiency and assets allow it to generate double-digit returns at $35/barrel, a significant discount from current prices. We expect the company will increase production and keep its focus on asset development. Production will almost double from the current levels to 1 million barrels/day by 2027.
Guyana has a similar story. The company’s Guyana projects, which will increase production to 800 thousand barrels per day, are only 40% of its reserves. The company continues to make new discoveries, ramp up production, and maintains its extremely low breakevens of $30 per barrel.
The company has an unusual and low-cost basis of assets across the board.
1Q 2022 Earnings
Exxon Mobil’s 1Q 2022 earnings were impressive, despite a nearly $4 billion write-down due to Russia’s exit.
Earnings – Investor Presentation
Exxon Mobil reported strong earnings and a P/E at 11, not including one-time items like the multi-billion dollar impact of Russia’s exit. The company continues to invest heavily in its business, with a full year target of $21-24 trillion in capital expenditure and continued structural savings. Both of these factors can be used to expand opportunistically.
The company’s financial strength was demonstrated by its $9.9 billion FCF and $4.3 billion cash after shareholder distributions and debt reduction. The company spent $5.8 Billion on shareholder distributions. This included approximately $1.9 Billion in share repurchases. This represents >0.5% of the company’s outstanding shares.
The company’s FCF yield in the double digits and significant shareholder returns are a testament to its financial strength.
Exxon Mobil continues its evolution
Exxon Mobil continues to grow.
Continued Evolution – Investor Presentation
Low carbon solutions are now a major part of the company’s portfolio. Exxon Mobil now acknowledges that shifting towards lower emissions is crucial and the company has the unique capability to be part of that process. The company can also benefit from the switch from coal to natural gases and carbon capture.
Coal is no longer considered the most affordable form of electricity. Natural gas is more affordable, and many renewables can be cheaper if the environment is right. Although storage and renewables can support variable demand, the core energy demand must still be met. Natural gas is a strong option, with coal being more polluting and nuclear less favorable.
Exxon Mobil is the global leader in carbon capture. The ability to capture carbon and store it for thousands of year or more allows humanity to recognize that certain activities are polluting. Exxon Mobil, which is well-positioned to do so, believes that large-scale carbon capture will be a part of the solution.
Exxon Mobil’s Contribution In Our Lifestyle
Exxon Mobil is a company that makes a significant contribution to our daily lives. This is one of the reasons Exxon Mobil has lasted so long. Although debates about oil, climate, fuel consumption, and fuel format can continue, one thing is certain. Energy, in many forms, is essential for modern life.
Natural gas is a cleaner fuel than coal, and it is extremely energy-dense. It’s also more portable with LNG. Exxon Mobil continues to expand in renewables, as we have discussed. The company has the project know-how, capital resources, and project expertise to continue growing in renewables. Exxon Mobil’s contribution to our lives means that Exxon Mobil is going to be around for a while.
Stocks of Cheap Oil
In an environment of high inflation, the market tends towards real assets. This is evident in crude oil and real property.
So, the question is: Why invest in oil stocks. Valuation is the reason. Crude oil is now recovering from a multiyear recession. Prices have reached $100/barrel for the first time since mid 2014. This is despite the fact that the dollar’s value has dropped significantly due to cumulative inflation since the beginning of 2014.
Due to investor concerns and slow recovery, many crude oil stocks still trade at extremely low valuations. Exxon Mobil targets $30 billion in annual share-buybacks over the next 2 years, and is barely at a double digit P/E. This means that these companies are not only capable of handling inflation but also trade at an extremely low value.
Thesis Risk
Crude oil prices are the biggest risk to our thesis. Prices have been volatile in the past, even when the macroeconomic climate favors increases. It is possible that production could increase in this high-priced environment. This could lead to lower prices and decrease returns.
Conclusion
Exxon Mobil shares have seen a significant recovery in value over the past year due to rising crude oil prices. The company’s recent earnings prove that this strength is valid. The company trades at a low, double-digit P/E and has a manageable amount of debt. It comfortably ignored the need to exit Russian markets.
The company is focused on shareholder returns and has significantly increased its buyback program to $30 Billion. The company’s assets have an unmatched ability to outperform in today’s high inflationary environment. With the company’s valuation, this helps strengthen the company’s position as a long term investment.
