Exxon Mobil Corporation (NYSE:XOM) might be losing its CEO, but shareholders don’t appear to be too worried. Donald Trump’s transition team on Tuesday said that the president-elect is selecting Exxon Mobil chief Rex Tillerson — the company’s chief since Jan. 1, 2006 — to be his secretary of state. But a 1% premarket gain in XOM stock indicates that there aren’t many fears about a leadership vacuum at the oil major.
Of course, it might be that Wall Street doesn’t think Tillerson will actually get the new job.
While Tillerson does have extensive experience traveling the world and growing business relationships with a number of countries, he, like Trump, hasn’t held any political office. Moreover, there are worries about Tillerson’s extensive relationship with countries in the Middle East and Russia, including what The New York Times deemed a “too-cozy relationship with Vladimir V. Putin, the president of Russia.”
Those ties would face immense scrutiny, as several of XOM’s contracts with Russia require the United States to knock down current sanctions against Russia.
It would take at least 50 votes to confirm Tillerson as the new secretary of state. The problem? While Republicans do have 52 votes, the Washington Post reported that “GOP advisers have warned that a growing number of Republican senators may be unwilling to vote to confirm Tillerson because of his ties to Russia.” Thus, a unified Democratic front could still prevent Trump’s pick from making it to Washington.
Tillerson’s exit wouldn’t necessarily be celebrated by Exxon Mobil stock holders, despite the company’s underperformance. While XOM shares are up just 102% since Tillerson took the CEO role on Jan. 1, 2006 — compared to 123% for the S&P 500 — much of that obviously lies on the massive 2014-16 collapse in oil prices.
But under Tillerson, the company has expanded investments in areas of the business such as Exxon Mobil Chemical, which has helped buoy profits amid the low-priced oil environment. Meanwhile, he has managed to keep Exxon’s long-paid and long-increasing dividend intact, and shares have been in rebound mode for nearly a year.
XOM stock might be a bit toppy at current prices, however.
Click to Enlarge Like fellow energy majors Chevron Corporation (NYSE:XOM) and BP plc (ADR) (NYSE:BP), shares have streaked skyward largely on optimism (and the eventual confirmation) that OPEC and other oil-producing countries would lower their output. Shares bounced definitively off the major moving averages at the end of November, and they’ve ticked into overbought readings, per the Relative Strength Index (RSI).
Exxon’s valuation metrics are similarly ballooning. XOM stock now fetches almost 22 times forward earnings estimates, and its price/earnings-to-growth ratio sits above 2 (where anything above 1 is considered overvalued).