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What Do ExxonMobil’s Most Recent Valuations Reveal?

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Aug. 18 2020, Updated 10:10 a.m. ET

ExxonMobil’s valuations

In the previous article, we looked at changes in ExxonMobil’s (XOM) institutional holdings. Now, we’ll have a look at ExxonMobil’s valuations compared to those of its peers.

ExxonMobil is trading at a forward PE (price-to-earnings) multiple of 20.6x, higher than the peer average of 18.3x. ExxonMobil’s peers Chevron (CVX) and Suncor Energy (SU) are also trading above the average forward PE multiple at 23.7x and 31.2x, respectively. The remaining stocks in the chart above are trading below the peer average.

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Moving on to the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, ExxonMobil is currently trading at a forward EV-to-EBITDA multiple of 8.6x, higher than the peer average of 6.0x. Like XOM, Chevron (CVX), Royal Dutch Shell (RDS.A), and Suncor Energy (SU) are trading above the average forward EV-to-EBITDA at 7.5x, 6.2x, and 8.5x, respectively. BP (BP), Statoil (STO), and Petrobras (PBR) are trading below the peer average at 5.7x, 3.6x, and 5.0x, respectively.

Why is XOM commanding a premium over its peers?

The premium valuation that XOM commands is presumably the result of its financial health in terms of lower debt compared to Shell and BP.

Integrated energy companies have seen rises in their debt levels recently due to volatile oil prices. Plus, companies such as BP (BP) have been hit by Gulf of Mexico oil spill costs. Similarly, Shell’s acquisition of BG Group pushed up its debt.

However, overall conditions seem to be improving with the recovery in oil prices. If we take a look at total debt-to-total capital ratios in 3Q17, ExxonMobil’s stood the lowest at 18%, and Chevron’s stood at 22%. Shell’s and BP’s ratios stood comparatively higher at 31% and 44%, respectively, in the quarter. These numbers show that XOM is in a better leverage position compared to its peers. XOM’s better leverage could be the reason for its premium valuation.

In the next article, we’ll review the changes in ExxonMobil’s short interest position.

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