Exxon Mobil Corp. (NYSE:XOM) closed up 2.0 percent at $97.22 per share on December 16 following an upgrade to Buy from Neutral from analysts at Goldman Sachs. The analysts argue that oil and gas super majors — a group of industry titans that includes Chevron (NYSE:CVX), Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB), BP (NYSE:BP), and Total SA (NYSE:TOT) — are headed for an inflection point in 2014. Production volume is expected to grow organically for the first time since 2006 at Exxon Mobil thanks to a “positive inflection in Exxon’s production profile.”
In a note seen by Barron’s, analyst Arjun Murti argued that Exxon and the other super majors are not only gearing up for great years to come, but that they’re cheap. “On long-term metrics, Exxon shares look inexpensive versus its own history on an absolute basis and relative to the S&P 500,” he wrote. “Exxon is trading at a discount to its long-run average (1995-2013) on an absolute basis and relative to the S&P 500. Exxon’s 2014E absolute/relative P/E is 11.6X/76 percent, which is below its long-run average of 15.6X/95 percent.”
Such a combination would make Exxon Mobil an attractive buy for any investor willing to settle in for the long haul. Shares have climbed just 7.44 percent this year to date, lagging the S&P 500, but with slower index-wide growth expected for 2014, the stock could emerge a winner.
Shares of Exxon have climbed just 7.44 percent this year to date. Chevron has performed similarly, climbing 8.61 percent and trading at a relatively low trailing P/E of 9.83 compared to Exxon Mobil’s 12.70. BP has crawled up just 7.71 percent but is also cheap — likely due to its ongoing legal troubles — with a trailing P/E of 7.67.
A possible tailwind for Exxon Mobil — and even other industry players like Chevron and BP — is the evolving natural gas market. Exxon Mobil is fighting to end restrictions on exporting oil and natural gas now that the United States is gearing up to be a net energy exporter. Over the past few years, the stock has generally traded sideways, offering little growth as the oil and gas industry undergoes a rapid evolution.
That evolution has primarily been driven by the natural gas boom in the United States. Exxon Mobil is the largest producer of natural gas in the U.S., but this title is a mixed blessing. Due to the boom, natural gas prices have been held down in the U.S. to about $3.15 per thousand cubic feet as of November. In Europe, prices are more than three times that at more than $10/mcf, and in Asia, prices are higher than $15/mcf. Exxon Mobil’s position at the head of what could soon become a major export industry for the U.S. is certainly attractive.
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