The Razor's Edge

2-Year Price History

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 1.38x and 1.01x respectively.

Notice that XOM's current Price to Sales per share ratio is 0.86x, 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 $80.30, XOM is 28% 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

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently XOM is significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for XOM to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 10.49 and a 7.68 low over the same period.

Now that XOM’s current price is $80.30 and its Price to Cash Earnings ratio is 6.57, we are very positive on its outlook from the cash earnings perspective. In fact, XOM is now trading a full 28% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why XOM has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

XOM Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In XOM’s case, the estimated annual dividend is $1.60 resulting in a current dividend yield of 1.99%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from XOM against the historic high and low levels over the past 10 years. The highest dividend yield from XOM over this period was 3.11% while the lowest dividend yield was 1.44% Given this range, the current dividend yield for XOM is below its historical median and not terribly attractive from this perspective.