Morningstar

Exxon Stands Aparts From Its Peers

The energy giant's ability to generate cash, thanks to its scale and high-quality integrated operations, sets it apart and keeps it the most defensive of the group.

Securities In This Article
Exxon Mobil Corp
(XOM)

Like its integrated peers,

For the year to date, the company is running a deficit that required an increase in debt, but we expect that by next year it can achieve cash flow neutrality at $60/barrel Brent, a feat its peers cannot. Furthermore, cost savings (capital and operating) combined with greater capital flexibility should bring its break-even level down further during the next few years, while the company continues to increase its dividend and maintain share repurchases. While Exxon continues to refrain from providing specific targets, instead invoking its goal of constant improvement, it did reveal an $8 billion reduction for the year to date in capital and cash operating costs and a 10% reduction in upstream unit costs. As a result, the company expects that capital spending for the year will come in below its original guidance of $34 billion.

Exxon's ability to generate cash, thanks to its scale and high-quality integrated operations, sets it apart from peers and keeps it the most defensive of the group. It is not without growth opportunities, however, and we expect it to continue delivering superior returns on capital. Hence, we assign the company a wide moat rating, meaning that it’s a compelling investment through the cycle. That said, we think these factors are largely incorporated into its valuation, and with our fair value estimate unchanged, Chevron is slightly more attractive at current levels.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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