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xom

Exxon Mobil Corporation (Exxon Mobil) through its divisions and affiliates is engaged in exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. Exxon Mobil is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. Exxon Mobil also has interests in electric power generation facilities. Affiliates of Exxon Mobil conduct research programs in support of these businesses. Exxon Mobil Corporation has several divisions and affiliates, many with names that include Exxon Mobil, Exxon, Esso or Mobil. The Company operates in three segments: Upstream, Downstream and Chemicals. In April 2008, Galp Energia SGPS S.A. has acquired Exxon Mobil Corporation’s businesses in Spain and Portugal.

First some of the problems.

It would seem that management are capitalising a portion of receivables onto the Balance Sheet. I would suspect that these are potential writedowns at some point in the future. Assume the worst and adjust for them as writedowns at $0.29/share

Management are also capitalising Operating expenses. This of course directly enhances the bottom line, and inflates Net Income. This is particularly obvious in the forthcoming 2008 financials, where I have adjusted for potential results [obviously they may be slightly better or worse] thus I have adjusted by $0.16/share

Total adjustments = $0.45/share

Positive adjustments.

Management have discretionary cashflows through squeezing suppliers of some $0.21/share that has offset the deductions.

Adjusted per share adjustments = $0.21 – $0.45 = [-$0.44/share]
Adjusted Net Income = $9.80 – $0.44 = $9.36/share

The margins, notwithstanding the adjustments are outstanding. With a six year aggregate of 16.5% on a primarily common stock capitalization, this represents an outstanding return.

The common stock capitalization at 90%+ shows very low leverage. This in the current climate in part accounts for the relative out performance of XOM to it’s peers.

Pension liabilities = $34.5 Bil
Pension Assets = $27.8 Bil

While underfunded, this is not at a point of danger with XOM’s earning power taken into consideration.

Reserves are at 21.5 Bil bbs [oil/gas] which represents circa 22.6 yrs based on the current 2.6 Mil daily production. Thus, there is a substantial timeframe of safety currently.

Reserves are being replaced at a 1.74% compounded rate. They are thus growing at 0.74% compounded. This represents value for common share holders.

Common shares are [and have been] the subject of repurchase. To date the ownership base has been reducing at a 2.8% compounded basis. Thus, holders are benefitting from this management policy.

Valuation = $136.52/share
This is a conservative valuation, and thus trading at circa $77.00/share represents a 76% discount from fair value.

In summary, barring some management manipulation, Exxon represents a conservatively capitalised, highly profitable and massively undervalued investment common stock.

However, I shall run another analysis, to provide confirmation [or refute] of the initial analysis.

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