Exxon Looks Like Good Value Here Based on Its Value Metrics and Growth Outlook

Exxon Mobil (NYSE:XOM) looks like the kind of stock to which value investors have typically gravitated. For one XOM stock has a very attractive dividend yield.

Exxon Mobil (XOM) logo outside of a corporate building
Source: Harry Green / Shutterstock.com

As of Feb. 25, the stock was at $77.83. With the recently raised dividend per share (DPS) of 88 cents, or $3.52 annually, the dividend yield is just over 4.52%.

There are a lot of other technicals that make XOM stock quite attractive to value investors. So let’s dig into those numbers now in some more detail.

Attractive Yield and P/E

That is a very attractive dividend yield. It is above the market average yield but below its own 5-year historical average yield of 5.35%, according to Morningstar.

If we divide the $3.52 DPS by 5.35% we get a price target of $65.79. So, technically the stock might be overvalued on a historical basis.

However, given that the dividend is likely to rise at least 10% over the next year, its price target is more like $72.37.

Moreover, analysts expect the company’s earnings per share (EPS) to grow 23% this year from $5.38 in 2021 to $6.62 this year.

That puts the stock on a fairly cheap P/E of just 11.8 times (i.e., $77.83/$6.62). This is well below its own historical five year average of 19.69x, based on Morningstar data.

As a result, the stock should have a target price of $130.35 per share (i.e., 19.69 x $6.62 EPS). This is 67.5% over today’s price.

So now we have two target prices: $72.37 and $130.35. We can also assess XOM stock using its cash flow.

Exxon Cash Flow Target

Exxon produced $48.1 billion in Cash Flow from Operations (CFFO) in 2021. After deducting $12.08 billion in capital expenditure, its free cash flow (FCF) for the year was $36 billion.

If we use a 5% FCF yield (equivalent to a P/FCF multiple of 20x), the stock is worth $720.4 billion (i.e., $36b/0.05 = $720b).

That is over twice its present market cap of $329.5 billion (i.e. $720.4/$329.5 – 1 = 119%). This implies that using FCF Exxon stock is worth $170.14 per share (i.e., 2.186 x $77.83).

That is the third price target for Exxon stock. We can average all three of these: $170.14, $72.37, and $130.35. The average is about $125 ($124.29).

That implies that Exxon stock is still worth 60% more than its present price.

What Analysts Say About XOM Stock

TipRanks reports that 18 analysts have an average price target of $84.89, or 12% over today’s price. The same is true for Refinitiv, whose analyst surveys Yahoo Finance uses. Their average price target from 27 analysts is $81.36, or just 4.5% over today’s price.

Seeking Alpha‘s survey has a similar average from 28 analysts: $81.06 per share. That is just over today’s price — i.e., not much upside from here.

However, recently three research firms have upgraded their recommendations on XOM stock. They are Argus Research, RBC Capital Markets, and Truist Securities, according to Yahoo Finance.

So, either believe me that the stock is still well undervalued or listen to the Street analysts. So far I have been consistently right on this stock as I was recommending it last year.

What to Do With XOM Stock

This is a long-winded way of saying that Exxon stock is cheap relative to its past historical value metrics. The point is that the company is producing large amounts of cash flow and this is likely to continue occurring.

Moreover, it doesn’t hurt that Exxon recently restarted its own share buyback program. In its earnings release on Feb. 1, the company said that it would initiate a $10 billion buyback program.

Assuming this takes two years to occur, that works out to a 1.5% buyback yield. In other words, 1.5% of its market value in terms of shares outstanding will be reduced. Actually, it will be less than that given options programs. Let’s say that it works out to 1.25%.

Therefore the total yield, including its 4.52% dividend yield, is now 5.77%. That is a very attractive return for most investors. Over the long run, and assuming that inflation ameliorates it is likely to lead to a very ROI for most investors.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


Article printed from InvestorPlace Media, https://investorplace.com/2022/02/xom-stock-looks-like-good-value-here-and-is-at-least-60-percent-undervalued/.

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