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Behind ExxonMobil's Integrated Value Chain: XOM in 3Q17

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Part 8
Behind ExxonMobil's Integrated Value Chain: XOM in 3Q17 PART 8 OF 17

What ExxonMobil’s Valuations Reveal Today

ExxonMobil’s valuations

ExxonMobil (XOM) is trading at a forward PE (price-to-earnings ratio) of 20.6x, which is above the peer average of 17.6x. Peers Chevron (CVX) and Suncor Energy (SU) are trading above the average forward PE ratio at 23.7x and 28.0x, respectively, while the remaining stocks in this peer group are trading below the peer average.

What ExxonMobil’s Valuations Reveal Today

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ExxonMobil (XOM) is now trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) of 8.4x, which is above the peer average of 5.6x. Chevron (CVX), Royal Dutch Shell (RDS.A), and Suncor Energy (SU) are also trading above the average forward EV-to-EBITDA ratio, at 7.0x, 6.0x, and 8.2x, respectively.

By contrast, BP (BP), Statoil (STO), and Petrobras (PBR) are trading below the peer average, at 5.4x, 3.4x, and 5.1x, respectively.

But why does XOM command a premium over peers?

XOM’s valuations stand higher than the peer average likely due to its balance sheet strength and comfortable leverage position. By comparison, Royal Dutch Shell (RDS.A) and BP (BP) have high leverages, and both companies have been hit hard by lower oil prices, in addition to other company-specific events.

BP has been hit by Gulf of Mexico oil spill charges, and Shell has acquired the BG Group—both of which caused increases in the companies’ respective leverages. But over the past few quarters, Shell’s leverage situation has been improving. (For more on the leverage comparison, please refer to “XOM, CVX, RDS.A, BP: Where They Stand after 2Q17 Earnings.”)

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