The Razor's Edge

2-Year Price History

Ockham's Rating

XOM Stock Evaluation

In this week's report, we are reiterating our Undervalued rating on XOM. In the last week there has been no revisions made to earnings expectations, but our valuation has obviously been influenced by the increase in price of 5.72%. While that price increase has not caused a downgrade this week, we will continue to closely monitor the fundamentals in case a future change in rating is warranted. The complete fundamental analysis of XOM follows below.

XOM Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, XOM the high and low end of the Price to Sales per share ratios are 1.29x and 0.92x respectively.

Notice that XOM's current Price to Sales per share ratio is 0.70x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $80.15, XOM is 37% below where we would expect to see it. This will beneficially factor into our final analysis of XOM as it is not often that this stock sinks to these levels.

XOM Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. XOM is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for XOM, the current level of Cash Earnings compared to its historical levels helps identify where XOM is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 9.65 and a historical low Cash Earnings per share ratio of 6.83, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for XOM? From the Ockham perspective, we are looking specifically at XOM to see if the market is recognizing the huge disparity between XOM's past stock price to Cash Earnings ratio to today's levels. At a difference of 26% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at XOM. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

XOM Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for XOM to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for XOM is $1.60 producing a current dividend yield of 2.00%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from XOM against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from XOM over previous years was 3.11% while the lowest dividend yield was 1.44%. Management at XOM needs to get the current dividend yield above the historical median before we are comfortable from this point of view.