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Weekend Reading - XOM

XOM has a great balance sheet, great management and incredible operating efficiency... and you should short it.

Some details on XOM.

XOM is 5.5% of the SP

XOM is worth as much as WMT MSFT and AAPL combined.

They have 37 bil cash 10.3 bil debt

Earned 14 bil last qtr and used it as follows - 8 bil to retire almost 109 mil shares (avg cost 79.70 per share) and 700 mil for stock to be given to employees along with 2.1 bil in dividends.

2009 earnings are projected to fall from 8.53 to 5.51 (yahoo earnings estimates) 36% yoy decrease. I think that's being overly optimistic given I see no recovery for oil or nat. gas this year.

ExxonMobil’s remaining net book investment in Cerro Negro producing assets is about $750 million. - Chavez stole this from them and they have not written it off yet.

Damage repairs and lower volumes across all business lines associated with the hurricanes are expected to reduce fourth quarter earnings by about $500 million.

XOM's corporate and financing expenses in the first nine months of 2008 of $907 million, increased by $807 million due to lower interest rates on cash balances and higher corporate costs, and included $460 million of charges related to the Valdez litigation. --- Even taking out the valdez stuff corporate and financing charges increased 400% to 407 million dollars because they can't get any interest on that huge amount of cash - that 407 million will be a lot more material as their earnings get cut down 36%

Obama just said that his economic stimulus plan will take 3 to 4 years, so don't expect any big economic rebound in the next 18 months.

Obama also is going to double renewable energy in 3 years which is a longer term headwind for XOM.

Catalyst's to move shares lower:

Declining earnings
Impossible yoy comparisons
Deepwater drilling and tar sands investment impairments will need to be written off
More hostile foreign governments given the difficult environment
They will have to slow down the buyback very significantly
Oil prices down 50% from the 3rd qtr and nat. gas down even more
The chemicals business has nose dived
Refining margins were not good in q4 despite the sharp decreases in oil and of course demand has continued to worsen

10x next years (overly optimistic) earnings estimates = 55 + cash of 5.25 = $60.25 a share yielding 2.6% ---- 23% downside.

Note: They report on Friday and in full disclosure I am short XOM

Update: Interesting Chart


Unknown said...

I would short XOM and go long COP...Pairs trade !
Also like KMP on a pullback.
Have a fruitful week ! Banana ?

Leonard The Monkey said...

XOM with COP or CVX looks like a great pairs setup to me.

Maybe even an SSO vs. XOM pair.

Sure a lot more layoff announcement's this morning... depressing.

Trading Goddess said...

lol! @ "a fruitful week"!

Glad we still have our sense of humor! Yay!

john bougearel said...

On another matter, if ever there is a sudden dollar devaluation, we want to be long energies. So, eyeballing for a price base in energies in 09 is a wise thing to do with expectations so low and probably overshooting with extreme pessimism.

I, being a contrarian, and recognizing the need to front-run Obama's fiscal policies suggesti we watch for base-building in materials and energy where expectations are the worst. If expectations overshoot on the downside, and Obam's policies require cap-ex into materials and energy, we need to fish that side of the boat in 09 if we want to catch fish. Even if we get skunked, at least we will have the cushion of buying extreme pessimism which will limit downside risks

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