Exxon Mobil: Cheap At An 11x Multiple, Bigger Buybacks Possible In 2H

Core Viewpoint - WTI crude oil experienced its best weekly performance in two months, maintaining prices in the mid to high $70s per barrel despite various macroeconomic challenges [2][6] - Energy sector stocks, particularly the Energy Select Sector SPDR ETF (XLE), are underperforming compared to the S&P 500, reaching a 26-month relative low [2][3] - Exxon Mobil (NYSE:XOM) is recommended as a buy due to its attractive valuation and strong free cash flow generation [2][12] Company Overview - Exxon Mobil is a leading integrated oil and gas company, producing 2.4 million barrels of liquids and 7.7 billion cubic feet of natural gas daily in 2023 [5] - The company holds reserves of 16.9 billion barrels of oil equivalent, with 66% being liquids, and has a global refining capacity of 4.5 million barrels per day [5] Financial Performance - In Q1 2024, Exxon Mobil reported non-GAAP EPS of $2.06, below expectations of $2.18, but revenue of $83.1 billion exceeded estimates by $1.6 billion [6][10] - Oil production increased by 2.5% year-over-year, while natural gas production saw a decline [6][10] - The company generated $14.7 billion in cash flow from operations, surpassing estimates by $1 billion, and recorded free cash flow of $10.1 billion for the quarter [8][10] Cost Management and Strategy - Exxon Mobil aims to reduce costs by $1.5 billion through 2027 and has recently repaid $1.1 billion of debt, resulting in a debt-to-capital ratio of 16% and a net debt-to-capital ratio of 3% [8][10] - The company is focused on shareholder-friendly initiatives, including share buybacks, following its acquisition of Pioneer [8][18] Earnings Outlook - Analysts predict a 3% annual decline in EPS for 2024, with a recovery expected in subsequent years, projecting non-GAAP EPS to approach $10 by 2026 [10][14] - Exxon Mobil's dividend yield is approximately two percentage points above the S&P 500, with a free cash flow yield of 7.3% [10][12] Valuation Metrics - Exxon Mobil is currently trading at 12.0 times earnings, which is significantly lower than its long-term average [12][14] - The company's EV/EBITDA multiple stands at 5.7x, indicating potential for earnings growth if oil prices stabilize [12][14] Technical Analysis - The stock has been rangebound between $95 and $120, with a lack of a clear primary trend [16][18] - Support levels are identified near $80, while a breakout above recent highs could target approximately $150 [16][18]