The king of the oil majors, Exxon Mobil Corporation (NYSE:XOM), was about flat for 2012; as such it outperformed oil prices, which were down for the year. Its market capitalization is now about $390 billion. According to the company’s most recent 10-Q production was down in the third quarter compared to the same period in 2011, with natural gas production in particular falling 9%. Overall, this resulted in revenue declining 8%. Earnings were down about the same amount, though due to a reduction in share count earnings per share only declined to $2.09 from $2.13 in Q3 2011. A big first half of the year, combined with the mediocre stock performance in 2012, have left Exxon Mobil trading at 9 times trailing earnings. This suggests that the market is counting on more earnings declines going forward.
Wall Street analyst consensus is for $7.91 per share in earnings for 2013, which implies a forward P/E of 11. That multiple also seems low, so either Exxon Mobil Corporation would have to underperform expectations or earnings per share would have to be even lower in subsequent years. We’d also expect the company to continue buying back shares, which as we’d noted earlier had offset much of last quarter’s earnings decline on a per share basis. Exxon Mobil also pays a dividend yield of a little under 3%, returning cash to shareholders through that channel as well.
50 hedge funds and other notable investors in our database of 13F filings reported a position in Exxon Mobil Corporation at the end of September, which allowed the oil company to make our list of the ten most popular energy stocks among hedge funds (see more energy stocks hedge funds love). Billionaire Stanley Druckenmiller initiated a position of 1.3 million shares, which made Exxon Mobil his largest position by market value (find more of Druckenmiller’s favorite stocks). AQR Capital Management, which is managed by Cliff Asness, added shares and had 3.3 million shares in its own portfolio at the end of the quarter (check out Cliff Asness’s stock picks).
Other large oil majors include Chevron Corporation (NYSE:CVX), BP plc (NYSE:BP), ConocoPhillips (NYSE:COP), and TOTAL S.A. (NYSE:TOT). BP and ConocoPhilips each trade at 7 times trailing earnings, which is something of a discount to Exxon Mobil. While BP’s net income was up 8% last quarter versus a year earlier, it makes sense for it to carry a lower P/E multiple than Exxon Mobil as that company is the market leader in the industry and BP’s reputation continues to be poor following the Deepwater Horizon disaster. We’d say that Exxon Mobil and BP are priced about right relative to each other, though both look like they may be undervalued. ConocoPhillips’ pricing is likely due to the fact that revenue and net income experienced double digit percentage declines in its most recent quarter compared to the same period in the previous year, including a 31% drop in earnings. The forward P/E is 10, a bit closer to where Exxon Mobil trades, and we think that we’d rather pay just a bit more for the larger and better performing company.
Total also carries a small discount to Exxon Mobil with a trailing P/E of 8, while Chevron actually matches the larger company at 9 times trailing earnings. Given that Chevron’s net income came in 33% lower last quarter compared to the third quarter of 2011, we think that we would avoid it. Total boasts a divided yield of about 5%, and might be considered for that alone. It trades at 7 times consensus earnings for 2013, suggesting that analysts actually expect higher net income here next year. If there turns out to be a good reason why it is supposed to improve while Exxon Mobil’s earnings decline, then Total might be a potential value play as well.
Oil majors seem to offer good value opportunities, including Exxon Mobil. It trades at a premium to its peers, but it does also have some advantages over those other companies. BP and Total might also be worth considering.
