ExxonMobil Posts Strong 1Q on Rising Oil Prices
We are increasing our fair value estimate slightly to $82 from $81 for the narrow-moat firm.
Exxon maintains one of the lowest dividend breakeven of the group at about $40 per barrel, ensuring its safety in almost any price environment. Dividend growth the last two years, however, has been relatively paltry compared with historical rates. For the second consecutive year, Exxon increased the dividend only 2.7%, well below the historical average of approximately 6%. We think this reflects the firm’s more cautious outlook on commodity prices and its desire to retain flexibility to make opportunistic acquisitions as opposed to the its cash flow generating ability. While its also refrained from repurchasing shares as well, we expect both dividend growth and repurchase to occur in the coming years given our forecast for increasing free cash flow.
Our fair value increases slightly to $82 from $81 after incorporating expected U.S. tax changes. Our narrow moat rating is unchanged.
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