Exxon Mobil Shares: A 32% Undervalued Opportunity

Exxon Mobil Corporation (NYSE:XOM) shares have been trading at a significant discount to their intrinsic value estimate, with a 32% gap between the two. This discrepancy presents an attractive opportunity for investors, as the stock's fundamentals and valuation metrics suggest it is undervalued. In this article, we will explore the key factors driving the intrinsic value estimate and discuss the potential catalysts that could close the gap between the current market price and the estimated intrinsic value.

Intrinsic Value Estimate and Current Market Price

The intrinsic value estimate for XOM shares is $182.51, while the current market price is $114.77. This 32% gap suggests that the stock is undervalued, presenting an opportunity for investors to buy shares at a discount to their estimated intrinsic value.

Key Factors Driving Intrinsic Value Estimate

Several factors contribute to the intrinsic value estimate for XOM shares:

1. Valuation Metrics: XOM is trading at a forward P/E ratio of 13.806122, which is lower than the S&P 500 average of around 15. This suggests that XOM may be undervalued relative to the broader market. Additionally, the stock's dividend yield is 3.64%, which is higher than the average yield of the S&P 500 (around 1.5%).
2. Earnings Growth: Analysts expect XOM's earnings to grow at an annual rate of 11.84% over the next three years, which is slower than the US Oil & Gas Integrated industry average of 17.32% and the US market average of 22.25%. However, the company's earnings growth rate is still positive and higher than the risk-free savings rate of 4.5%.
3. Revenue Growth: XOM's revenue is expected to grow at an annual rate of 5.61% over the next three years, which is faster than the US Oil & Gas Integrated industry average of 2.2% but slower than the US market average of 9.65%.
4. Dividend History and Payout: XOM has a strong dividend history, having raised its payouts for 42 consecutive years. The company pays a quarterly dividend of $0.99 per share, with a dividend yield of 3.64%. XOM has a low payout ratio, indicating that the dividend is sustainable and can grow in the future.



Potential Catalysts for Closing the Gap

Several potential catalysts could help close the 32% gap between the intrinsic value estimate and the current market price for XOM shares in the near to medium term:

1. Technical Breakout: The market has broken a significant resistance point and is on track to hit the $138 level soon, with a potential move to $200 over the next 12 to 24 months. If the stock price can break through the $138 level, it could attract more buyers and drive the price higher, closing the gap with the intrinsic value estimate.
2. Price-Multiple Expansion: XOM is trading at 15x earnings, which is undervalued compared to the S&P 500 average of 18x. If the stock's price-to-earnings multiple expands to align with the S&P 500 average, it could add 30% to the stock price, closing the gap with the intrinsic value estimate.
3. Analyst Upgrade Cycle: Analysts have set the bar low for XOM's Q3 earnings, expecting a sequential downturn in business and margin contraction. If XOM can outperform these expectations, it could trigger an upgrade cycle from analysts, driving the stock price higher and closing the gap with the intrinsic value estimate.
4. Positive Cash Flow and Balance Sheet: XOM's positive cash flow and healthy balance sheet allow for substantial dividend distributions worth more than 3% annually. If the company can maintain or grow these distributions, it could attract income-oriented investors, driving the stock price higher and closing the gap with the intrinsic value estimate.
5. Accelerated Share Repurchases: XOM is accelerating the pace of planned repurchases following the Pioneer deal, with no significant impact on the balance sheet expected. If the company can execute these repurchases successfully, it could reduce the number of outstanding shares, driving the stock price higher and closing the gap with the intrinsic value estimate.

In conclusion, the 32% gap between the intrinsic value estimate and the current market price for XOM shares suggests that the stock is undervalued. The company's fundamentals, such as earnings growth, revenue growth, and dividend yield, support this assessment. Several potential catalysts could help close the gap in the near to medium term, presenting an attractive opportunity for investors to buy XOM shares at a discount to their estimated intrinsic value.