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Summary

• There has been a tectonic change in the oil patch as of late.
• The price of oil has sunk to multi-calendar year lows on the again of information OPEC will not reduce production and the extraordinary accomplishment of North American oil and gas generation.
• Therefore, Exxon Mobil�� inventory has taken a hit as of late. Many analysts have appear out touting this is an exceptional buying chance.
• I say not so fast. In the following write-up we will attempt to figure out the truth regarding the opportunity Exxon Mobil gives dividend expansion investors.

Overview

There have been a number of articles or blog posts prepared recently touting the reality that Exxon Mobil (NYSE: XOM) presently presents a important acquiring chance. I am not so confident. In the following sections, I will do my very best to deconstruct the professionals and downsides with regards to the opportunity Exxon Mobil at present delivers dividend progress investors.

Current Chart

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(Supply: finviz.com)

Exxon Mobil is the undisputed winner of the oil patch

Exxon Mobil is a substantial integrated oil and fuel business with an over $four hundred billion industry cap. The following biggest oil business is PetroChina Co. Ltd. (NYSE: PTR) with an about $230 billion marketplace cap.

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(Resource: finviz.com)

The company's size and monetary wherewithal makes it possible for the international oil behemoth the capacity to withstand reduce oil charges for far for a longer time than the company's significantly less effectively-heeled opponents. Exxon Mobil CEO and Chairman Rex Tillerson advised CNBC on Wednesday,

&quotExxon Mobil can weather conditions the downturn in oil charges even if charges sink to $40 for each barrel. Exxon's huge assignments in places this sort of as liquefied natural gas and deepwater drilling are decade-extended investments that have been examined to carry out throughout a broad selection of price tag ranges, from $40 to $one hundred twenty for every barrel.&quot

Exxon Mobil is undoubtedly well positioned to deal with oil and gasoline value volatility. Nonetheless, Tillerson pointed out the minimal cost of oil will power oil businesses to refocus on the essentials.

My Take

I concur with what Tillerson states with regards to Exxon's potential to stand up to the coming storm, nevertheless don't see this as fantastic news for the stock. He is not declaring reduced oil charges will be a windfall for the company. Tillerson is declaring Exxon can endure lower oil costs. I will not see that as one thing to get fired up about.

Fundamental assessment

Powerful Totally free money flow in assistance of dividend

The main problem for dividend progress buyers is the basic safety and safety of the dividend. Exxon's current dividend is $2.seventy six per share and yields 2.ninety one% presently. I do not see any risk of a dividend lower at this time. Cost-free cash flow looks strong coming in at more than $4 billion previous quarter.

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(Source: ycharts.com

Any lower to the dividend would be disastrous for the stock. Even so, if oil does carry on decrease, there might not be significantly in the way of dividend expansion heading forward.

Price tag to earnings ratio

Exxon Mobil appears solid from a elementary perspective, but trades at a quality to its principal competitor Chevron (NYSE: CVX). Exxon's inventory currently trades for a trailing two month P/E ratio of 11.86 even though Chevron trades at ten.33.

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(Resource: ycharts.com)

Price tag to guide ratio

Exxon's stock at the moment trades for a price to book ratio significantly higher than all its significant opponents. Exxon trades for above 2.two times guide value even though the competition trades for nearer to a single times guid minix neo x8 android tv box. Chevron at the moment trades for one.35 times book worth.

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(Supply: ycharts.com)

So it is not like Exxon's stock is at the moment on sale from a essential viewpoint. Moreover, there does appear to be threat to the draw back presently.

Historical comparisons and correlations analysis

The price tag of oil and gasoline has dropped to multi-year lows more than the past handful of months.

WTI one calendar year chart

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(Source: cnbc.com)

WTI has dropped from a higher of over $102 for each barrel back again in June to beneath $70 a barrel as of these days. This is a 35% drop in the price tag of oil. On the other hand, Exxon Mobil's stock has in fact held up fairly effectively. The inventory is only down solitary digits more than the final quarter whilst most of the competition has been strike much more challenging.

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(Source: finviz.com)

Furthermore, Exxon's stock functionality has traditionally been very correlated to the price of oil. However, this is not the scenario at the moment. Although the price tag of oil has just lately nosedived, Exxon inventory has not felt the very same quantity of discomfort.

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(Source: cnbc.com)

This prospects me to believe we are in a &quotsomething has to give&quot type circumstance, and I am betting it will be Exxon's stock cost.

Only the tip of the iceberg

I feel this is only the tip of the iceberg when it comes to slipping oil charges. I am certain there is far more discomfort to occur. The entirety of the negative news for oil patch players has not been uncovered as of but. When it is you can assume the negatives will be rehashed in excess of and over by pundits. This prospects to increased headline danger going forward. Additionally, you can be positive some downgrades are on the way. With this kind of foreseeable future headline chance, there is no purpose to get lengthy the stock prior to the total repercussions of reduced oil costs shaking out. Tillerson was basically expressing - get prepared for some tough occasions in advance. Now is not the time to &quotback up the truck&quot on Exxon's inventory as some have recommended.

Anything will not include up

Benchmark oil costs fell to multi-year lows following OPEC declared it would preserve its present oil output. Numerous have said the oil glut is a provide side problem. Even with the huge boost in manufacturing by the US shale producers, I do not see offer aspect troubles accounting for the whole fall in the cost of oil. There is one more shoe left to drop I suspect. Some may possibly have forgotten Exxon Mobil's stock has traded considerably decrease than present ranges. The stock dropped to $57 for each share at one level.

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(Supply: cnbc.com)

I surmise demand from customers for oil has weakened due to slowing international economic expansion. At the very same time, the U.S. has additional three million barrels for every working day in manufacturing to an presently oversupplied industry. This is not great news for Exxon near term.

Closing Imagined

Exxon is a excellent organization with numerous positive fundamentals and seems to be in great form. Even so, I see it as a value lure rather than trade. There are as well a lot of headwinds but to be identified. I think there are numerous a lot more sneakers however to drop. I recommend keeping away from the stock. I feel you will get an opportunity to acquire the stock at a important price cut to existing levels in the in close proximity to future. Dividend growth investors ought to take a wait around and see strategy concerning the inventory. Now is not the opportunity to buy. The chance/reward for beginning a place in Exxon right now is unfavorable in my guide. I am not expressing you ought to quick the inventory. I am expressing it is also soon to declare this a main purchasing possibility. I am fascinated to hear your thoughts on the subject matter in the feedback segment.