ExxonMobil Holdings has delivered a powerful run in recent years, and that puts fresh attention on a simple issue for anyone looking at the stock today: how much of the current share price is really supported by the cash the business can generate over time.
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Over the past 5 years the stock has returned 226.7%. This raises the question of how much of that move reflects durable cash flow strength versus changing sentiment toward big oil.
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New headlines around large scale projects, regulatory shifts and climate litigation can affect future cash flows for ExxonMobil by influencing both the timing and the certainty of capital spending, operating costs and eventual payoffs from major fields like Kashagan.
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Prefer to judge ExxonMobil Holdings on earnings? See why ExxonMobil Holdings’s 21.9x P/E tells a different valuation story.
The issue now is whether ExxonMobil’s current share price can be fully explained by the cash flows implied by a Discounted Cash Flow (DCF) intrinsic value estimate.
If you want to stress test this same question about cash flow support for the share price across a broader energy set, run the numbers against 32 high quality undervalued stocks.
Is ExxonMobil Holdings a Bargain on Cash Flow?
The Discounted Cash Flow (DCF) model here takes ExxonMobil Holdings’ projected cash that can be returned to shareholders and discounts it back to today. Latest twelve month free cash flow sits at about $32.8b, and the projection set used in this DCF assumes ExxonMobil shifts from that level into a gently declining pattern over the next decade rather than rapid expansion.
Those easing cash flow assumptions still lead to an estimated intrinsic value that comes out modestly above the current share price of $174.08. The blocked Kashagan environmental fine settlement and linked $80b expansion decision help explain why the market may be giving a discount to the long term cash profile, since they add real uncertainty around future project payouts and capital intensity. That gap between price and the DCF output is what the detailed valuation work is designed to clarify. Find out what ExxonMobil Holdings could be worth using our Discounted Cash Flow (DCF) estimate.
The ExxonMobil Holdings Narrative: What Would Justify Today’s Price?
Narratives pick up where ExxonMobil Holdings’ DCF puzzle leaves off by spelling out which specific paths for growth, margins and earnings would need to unfold for the stock to be worth materially more or less than today’s price. They sit on Simply Wall St’s Community page as structured scenarios that each connect a fair value estimate to a clear set of catalysts and risks, so you can see over time which version of events is actually playing out.
Community views on ExxonMobil are split between one group that sees extra upside left in the tank and another that views the stock as largely priced in.
Bull case: 13% undervalued
“Shift toward lower cost, higher return production as advantaged assets in Guyana, the Permian and LNG move toward roughly 65% of total output by 2030…”
Discover why this Narrative puts ExxonMobil Holdings at 13% undervalued.
Bear case: roughly fairly valued
“The current view that ExxonMobil Holdings is fairly valued and bullish suggests that the share price already reflects substantial future cash flow from advantaged upstream growth, integrated refining and chemicals, and disciplined capital allocation…”
Explore why this Narrative puts ExxonMobil Holdings at roughly fairly valued.
One more check for ExxonMobil Holdings before you stop at the share price
Cash flows and scenarios only go so far when the real decisions come from the people in charge and how their rewards line up with your interests. See who runs ExxonMobil Holdings and how they are paid.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include XOM.
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Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
