22. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Investors In Q2 2024: 92
UBS’ Sector Rating: Neutral
Sector: Energy
Exxon Mobil Corporation (NYSE:XOM) is one of the biggest oil and gas companies in the world. A production base and operations spread worldwide have enabled the firm to amass significant resources as evidenced by its $31.5 billion in cash and equivalents and trailing twelve-month revenue of $341 billion. Yet, on the flip side, the sizeable global operations base requires Exxon Mobil Corporation (NYSE:XOM) to ship large volumes. Otherwise, the firm risks losing economies of scale and suffering from higher costs. Consequently, its volumes depend on the ability to increase its production base. Exxon Mobil Corporation (NYSE:XOM) can achieve this either through getting permits for new sites or through acquisitions. On this front, the firm is targeting expanding its presence in the US oil production hub, the Permian Basin by acquiring Pioneer Energy for an unbelievable $60 billion price tag. Exxon Mobil Corporation (NYSE:XOM) is also expanding its production in Singapore, Guyana, and the US. Any cost inefficiencies or production benefits from these efforts can create headwinds or tailwinds for the shares.
Madison Funds mentioned Exxon Mobil Corporation (NYSE:XOM) in its Q1 2024 investor letter. Here is what the fund said:
“This quarter we are highlighting Exxon Mobile (XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel.
The fund purchased XOM in March 2024 at $111. At the time of purchase, XOM had a dividend yield of 3.3% and a relative dividend yield of 2.4x the S&P 500, which was above its 20-year average of 1.75x. The company has an AA-rated balance sheet by Standard & Poor’s and is a Dividend Aristocrat that has raised its annual dividend 41 years in a row. XOM is one of only two Energy companies on the Dividend Aristocrat list, which requires dividend increases for 25 consecutive years.”
