Exxon's Financial Strength Sets It Apart From Peers

With a break-even dividend level of about $45/barrel, Exxon has cash to spare after paying its dividend and collecting proceeds from asset sales. The timing of a resumption of share repurchases remains uncertain, however. Even though current future prices for oil of about $55 suggest it could begin next year, we think it might wait, given the uncertain outlook on prices.

Furthermore, our oil forecast of $51 implies less room for error and leaves us more cautious. That said, we do eventually expect them to return as oil prices rise to our midcycle estimate of $60/bbl in the coming years.

Nothing in the quarter affects our long-term outlook on Exxon. We still see it as one of the higher-quality integrated oils, given its upstream and downstream portfolio. Its worth noting, though, that this year has marked a rather active year for the firm with respect to acquisitions, with its added resource positions in Mozambique, the Permian, and Brazil (to name a few) alongside its acquisition of an aromatics plant in Singapore. We see these acquisitions as moat-enhancing, as they avoid the potential overpayment of a corporate-level acquisition while bolstering existing positions or capitalizing on particular skill sets like deepwater and LNG. While on the upstream side these might only serve to backfill declining production, keeping volumes flat over the long term, they will (along with recent discoveries in Guyana) lead to improved margins and greater oil leverage.

We think most of this future earnings and margin expansion opportunity, along with the strong cash flow generation of the existing portfolio, is largely reflected in the current share price. With our fair value estimate and moat rating unchanged, we see shares as fully valued.

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