Morningstar

Exxon's Integrated Model Shows Strength

The narrow-moat firm reported strong cash flow during the quarter.

Securities In This Article
Exxon Mobil Corp
(XOM)

In contrast to most of its peers, Exxon reported an increase in downstream earnings to $1.6 billion from $1.5 billion last year as it was able to capture North American crude differentials to offset weakness in fuel margins. The ability to offset weak price differentials in upstream assets in Canada and the Permian through physical integration with downstream assets is a key element of differentiation for Exxon. It should continue to serve it well over the next year as differentials remain wide due to lack of pipeline capacity. Chemical earnings were a source of weakness falling to $713 million from $1.1 billion last year on lower margins and maintenance activity.

Importantly, Exxon reported strong cash flow during quarter after several quarters of relatively weak figures. Operating cash flow increased to $11.1 billion from $7.5 billion last year and $7.8 billion in the second quarter. Capital spending increased slightly, but guidance remains unchanged at $24 billion plus $1 billion-$2 billion for acreage additions in Brazil. Our fair value estimate and narrow moat rating are unchanged.

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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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