More than just a well-known fuel brand, Exxon Mobil (XOM – Free Exxon Stock Report) is a leader in the oil industry. Here, we take a look at this Dow-30 issue and identify what makes it an appropriate pick as a safe, long-term equity that generates decent income and provides stability to almost any portfolio.
For conservative players, the Safety rank is, no doubt, one of the key elements to consider. Located in the top left-hand corner of the Value Line page in the Rank box, it is a comprehensive measure of an equity’s total risk in comparison to all other issues under review. The rank ranges from 1 (Highest) to 5 (Lowest), and is based on a company’s Financial Strength and Stock Price Stability, both of which are found in a box at the bottom right-hand corner. In the case of Exxon, the stock earns a top-notch Safety rank of 1, making it ideal for the risk averse.
The beta coefficient, located in the Rank box just two lines beneath Safety, further supports the claim that Exxon is a fairly stable issue. It is essentially a gauge of a stock’s volatility relative to the overall market. XOM’s beta of .80 (where 1.00 = market) implies that the equity tends to be less volatile than the broader indices. So its price movements are generally not extreme in nature.
As we mentioned above, the Safety rank is determined by using two very important components: Financial Strength and Stock Price Stability. The former, which is represented by a letter on a scale of A++ (highest) to C (lowest), can give an investor much insight into the health of a company’s financial condition. It takes into account a host of balance sheet items, namely, cash assets and total and long-term debt, and considers the profitability of the business, too.
Indeed, the total and long-term debt amounts, along with the percentage of capital that long-term debt makes up, are found in the Capital Structure box at the left, center of the page, while the Current Position box just beneath it shows cash as part of a breakdown of current assets and current liabilities. Earnings are housed in the quarterly Earnings Per Share box as well as in the Statistical Array section. With more than $18 billion as of June 30, 2012, the oil giant is flush with cash, and its long-term debt level (of just under $9 billion) is at a very manageable 5% of capital, while operations are immensely profitable. Hence, Exxon’s Financial Strength grade of A++ means the company’s finances are in tip-top shape.
Stock Price Stability, the other element used to derive the Safety of a stock, measures volatility of weekly percent changes in the price of a company’s own stock over the last five years and runs on a scale of 100 (highest) to 5 (lowest). Again, here, XOM scores a perfect 100.
Meanwhile, by viewing the page, we note that the company pays out a dividend, made possible by its strong finances. The dividend yield, found towards the right side of the Top Label section, indicates the stock’s expected return from cash distributions on the equity over the coming 12 months. Although not overly eye-catching, XOM’s yield of 2.6% is decent, compared to all dividend-paying stocks in the Value Line universe. The Statistical Array and Quarterly Dividend box (at the bottom left-hand corner) show the dividend amounts and increases that have been paid in the past. Prospective payouts for the coming years, as estimated by analyst/Associate Research Director Robert Mitkowski, are also found in the Array. Based on these figures, stakeholders are reasonably rewarded here.
Although not a high-growth company, Exxon certainly stands above the crowd, in terms of realizing the benefits of combining oil production, refining, and chemicals manufacturing, as the analyst points out in the Commentary. With its recent expansion into the natural gas realm, as well as in potentially resource-rich regions around the world, the oil giant seems poised to keep the business moving at a sound pace to mid-decade.
Robert Mitkowski still believes the blue-chip stock is a long-term, core energy holding suitable for conservative types. Indeed, its defensive qualities can be counted on to provide shelter from market turbulence, while generating steady income. And that may well help an investor sleep better at night.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.