Is Exxon Mobil Corporation (XOM) the Most Profitable "Cheap" Stock to Buy Now?
104min read Exxon Mobil (XOM) has long been a stalwart of the energy sector, but is it now an undervalued gem? With oil prices volatile and global energy dynamics shifting, investors are scrutinizing Exxon’s valuation metrics, profitability, and strategic moves. Let’s dissect the data to determine if this oil giant is a compelling buy at current levels.
Valuation: A Discounted Leader?
Exxon’s current valuation metrics suggest it’s trading at a discount relative to its historical norms and industry peers. As of May 2025:
- EV/EBITDA: 6.62, below its 10-year median of 7.88 and slightly above the Oil & Gas sector median of 6.34.
- P/E Ratio: 13.55, lower than the sector average, signaling potential undervaluation.
- P/B Ratio: 1.77, near its 3-year low and below its 10-year median of 1.90.
These metrics position Exxon as a relative bargain. However, its EV/EBITDA ranking—worse than 52% of peers—suggests room for growth. Compare this to TotalEnergies (TTE.F), which has a higher P/E but stronger ROE (3.38% vs. Exxon’s 2.86%).
Profitability: Steady Cash Flows Amid Headwinds
Despite a 6% drop in Q1 2025 net income to $7.7 billion (vs. $8.2 billion in 2024), Exxon beat Wall Street expectations of $1.73 EPS. Key drivers include:
- Cost Discipline: Cumulative structural savings of $12.7 billion since 2019, with a $18 billion target by 2030.
- Cash Generation: $13 billion in operating cash flow (TTM) and $8.8 billion in free cash flow in Q1 2025.
- Shareholder Returns: $9.1 billion distributed in Q1, including $4.8 billion in buybacks under its $20 billion annual program.
While ROE (2.86%) lags TotalEnergies, Exxon’s net-debt-to-capital ratio of 7% is among the lowest in its peer group, reflecting financial flexibility.
Strategic Momentum vs. Risks
Exxon is doubling down on high-margin projects:
- Permian Basin & Guyana: Volume growth offset falling oil prices, with the Yellowtail FPSO set to add $3 billion in annual earnings by 2026.
- Chemical Complexes: The China polyethylene plant and Baytown advanced recycling unit aim to boost high-value product output.
- Carbon Capture: A new 2 million-ton CCS contract with Calpine brings total capacity to 8.7 million tons, with a 2030 target of 30 million.
Risks Remain:
- Oil Price Volatility: Crude prices fell 18% YTD in early 2025 due to U.S. tariffs and OPEC+ supply hikes.
- Chemical Margins: Asian overcapacity continues to weigh on profits.
- Legal Challenges: The EU’s “unjustified profits tax” and delays in the Baytown Blue Hydrogen project could strain cash flows.
Market Outlook and Analysts’ Take
- Stock Performance: Exxon’s shares fell 1.38% over the prior 52 weeks to $119.04, underperforming Chevron (+47% upside target) but aligning with a $128.40 consensus price target (+7.8%).
- Analyst Consensus: “Outperform” ratings dominate, citing Exxon’s low valuation and strong balance sheet.
Conclusion: A Buy for Patient Investors
Exxon Mobil is a compelling buy for investors willing to navigate energy sector volatility. Its low EV/EBITDA (6.62), robust cash flow ($13B TTM), and disciplined capital allocation make it a relative bargain. Strategic projects like the Guyana FPSO and China chemical complex position it to capitalize on long-term demand for oil and petrochemicals.
However, risks—such as oil price swings and regulatory hurdles—require caution. The stock’s 17% three-year TSR leadership also underscores its resilience.
Final Verdict: Exxon’s valuation and operational strengths suggest it’s undervalued relative to its peers. For investors with a 3–5 year horizon, XOM offers a high-margin, cash-rich entry into the energy sector. Just be prepared for near-term volatility tied to oil prices and macroeconomic shifts.
In a sector where “cheap” often comes with risks, Exxon’s fundamentals make it a standout candidate—provided you’re ready to ride the energy rollercoaster.
