ExxonMobil(NYSE: XOM) is an undisputed leader in the oil industry. With a roughly $450 billion market cap, it’s the world’s biggest international oil company (IOC) — that is, not state-owned. It leads IOCs in nearly every metric that matters, including earnings, cash flow, and returns.
While ExxonMobil is a leader in today’s energy industry, its ability to maintain its leadership will be a crucial factor in fueling its ability to grow shareholder value in the future. Here’s a look at whether ExxonMobil is worth investing $1,000 into today.
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ExxonMobil delivered industry-leading performance during the first quarter. Even more impressive is that the oil company didn’t just beat its peers; it absolutely crushed them. For example, the company led all IOCs by producing $7.7 billion in earnings and $13 billion in cash flow from operations in the first quarter. Here’s a look at how that compared with its peers in the period:
One factor driving Exxon’s much higher earnings is its industry-leading structural cost savings initiative. Since launching that program in 2019, Exxon has delivered a cumulative $12.7 billion in structural cost savings. That’s more than all other IOCs combined. Exxon is on track to deliver a total of $18 billion in structural cost savings by 2030. That’s more than most of its peers aim to deliver. For example, Chevron unveiled a plan last year to achieve $2 billion to $3 billion of structural cost savings by the end of next year.
Exxon also leads its peers in several other crucial categories. It has a 7% net debt-to-capital ratio, and 12% after stripping out its massive cash balance, which leads all IOCs. That’s well below the average leverage ratio of its peer group and for a company in the S&P 500, which is closer to 20%.
The oil giant also leads in delivering value for shareholders. It returned $9.1 billion of cash to investors in the first quarter, including an industry-leading $4.8 billion of share repurchases. Exxon also leads the oil sector in dividend growth. It has increased its dividend payment for 42 straight years, a feat only 5% of companies in the S&P 500 have achieved.
Exxon aspires to build an even better energy company in the coming years. By 2030, it aims to deliver the potential for $20 billion in additional annual earnings and $30 billion in cash flow, assuming a roughly $65 price for Brent oil, the global benchmark, which is right around the current level. That’s a massive step up from the $33.7 billion of earnings and $55 billion in cash flow from operations it delivered last year, which was its third-best year in a decade, even though commodity prices were around their historical averages. This forecast implies that the company will deliver compound annual growth rates of 10% for its earnings and 8% for its cash flow over the next several years.
A major factor fueling that growth is Exxon’s plan to invest about $140 billion into major capital projects, including up to $30 billion of lower carbon investment opportunities, and its Permian Basin development program through 2030. It’s pouring this capital into its lowest-cost and highest-margin assets. The company expects this capital to generate robust returns of more than 30% over the life of the investment. On top of that, the company plans to continue executing its structural cost savings program.
Exxon anticipates those investments will generate about $165 billion in surplus cash over that period. That will give the oil giant more money to return to shareholders through a growing dividend and a meaningful share repurchase program. Assuming reasonable market conditions, the company plans to repurchase $20 billion of its shares this year and another $20 billion next year.
The company’s plan will also put it in a stronger position to weather lower oil prices in the future. By stripping out additional structural costs and investing in its lowest-cost assets, Exxon will steadily lower its breakeven level, enhancing its ability to produce strong earnings and cash flow at lower oil prices.
ExxonMobil is the best-run company in the oil patch. It has a long history of wisely investing capital to grow shareholder value. The company currently plans to deliver 10% compound annual earnings growth through 2030, assuming a relatively conservative oil price point. Add that to its nearly 4%-yielding dividend, and Exxon has robust total return potential. While an unexpected plunge in oil prices could negatively affect Exxon’s plan, it’s putting itself in a better position to thrive at lower prices in the future. That makes Exxon look like a great place to invest $1,000 right now for those seeking a lower-risk way to invest in the oil sector.
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Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends BP. The Motley Fool has a disclosure policy.
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