TheExxonMobilCorporation

1

The Exxon Mobil Corporation CompanyDescription

ExxonMobilCorporation(EXXON).TheGroup'sprincipalactivitiesareexploration,production,transportationandsaleofcrudeoilandnaturalgas.

TheGroupoperatesthroughthreesegments:Upstream,DownstreamandChemicals.TheUpstreamoperatestoexploreforandproducecrudeoilandnaturalgas.TheDownstreamsegmentmanufacturesandmarketspetroleum

products.TheChemicalssegmentmanufacturesandmarketspetrochemicals.TheGroupmanufacturespetroleumproducts,whichincludesolefins,aromatics,polyethyleneandpolypropyleneplasticsandotherspecialty

products.Itisalsoamajorworldwidemanufacturerandmarketerofpetrochemicalsandparticipatesinelectricpowergeneration.TheGroupoperatesandmarketsintheUnitedStates,Canada,Europe,Africa,Asia

PacificandMiddleEast,RussiaandCaspianandSouthAmerica.

CreditRating:AAA

CompanyProfile

ExxonMobilistheworld’slargestcompanywithrevenueofover400

billiondollars.Exxonprovidesoilandgasproductsforbusinessand

consumeruse.Exxonisalsothelargestcompanyintermsofnetincome;

latestfigurespointtoover40billiondollars.ExxonisheadquarteredinIrving,

Texas,yethasglobaloperations.ThedivisionsofExxonaremostlyinvolved

withoildiscoveryandproduction.Exxonalsohassmallinterestsinchemical

andinfrastructurecomponentsworldwide.ThecurrentCEOofExxonMobilis

RexTillerson.Exxoncurrentlyproduces3%ofalloftheworld’soiland2%of

allenergy.Exxonhasabrightfuture,asoneofthemostdiverseenergy

companiesintheworld.Currently,Exxoninvestsover$600millionayear

intoresearchanddevelopmentforenergysolutionsthatwillmeetincreasing

Ticker: XOM

Sector: IntegratedOilandGas

Industry: Energy

Recommendation: Hold

Pricing

ClosingPrice $67.90 (2/28/09)

52‐wkHigh $96.12 (5/21/08)

52‐wkLow $56.51 (10/10/08)

MarketData

MarketCap $337.9B

Totalassets $15.41B

Tradingvol 4.46M (3monavg)

Valuation

EPS(ttm) $3.17

P/E(ttm) 8.50

PEG .2

DivYield 2.36%

Profitability&Effectiveness(ttm)

ROA 13.75%

ROE 34.35%

ProfitMargin 9.5%

OperMargin 20.8%

GrossMargin 49.6%

JohnLothmanjdlrzf@mizzou.edu

TheExxonMobilCorporation

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futuredemand.ThefutureforExxonMobilisbright:mostoftheworldisreliantuponoilandgas.Thiscreatesa

futuredemandfortheproduct,whichisnecessaryforallvalueinvestments.Theenergysectorfell53%overthe

pastyear,andExxonhasonlyfallen11.5%overthesametimeperiod.ThisisastrongindicatorthatExxonwill

outperformthemarketintheupcomingmonths.Also,becauseof

recentnaturaldisasterslikeHurricaneIke,Exxonhasspentlarge

amountsofcashintherepairsoffacilitiesintheGulfofMexicothatare

reflectedinthe2008financialstatements.HurricaneIkeandGustav

causedover570milliondollarsofdamagestoExxon.Also,Exxon’s

strongglobalpositioningwillhelpmitigaterisksassociatedcompanies

thatonlyhaveoperationsandsourcesofrevenuesoriginatingintheUS.TheiroperationsintheUScontributeto

only31%of2007salesfigures,with69%comingfromglobaloperations.Exxoniscurrentlyinvestingover26

billionannuallyintocapitalexpenditures.In2008,Exxoncommittedtospending1billiontodevelopthree

refineriestoincreasetheamountofclean‐burningdieselfuelby6milliongallonsperyearthroughthree

refineriesinBaytown,BatonRougeandAntwerp.

SWOTAnalysis

Helpful Harmful

InternalOrigin Strengths:1. Largest,MostProfitable2. HugeInvestmentsinR&D3. SmallDebttoEquityRatio

Weaknesses:1. OperatingMarginbelowIndustry

2. HigherEffectiveTaxRate3. IncreasingTransportationCosts

ExternalOrigin Opportunities:1. NewTechnologies,Energy2. GrowthinNewMarkets

3. 4xLargerthanCompetitors

Threats:1. EconomicConditions(Recession)2. PoliticalConcerns(WindfallTax)

3. OilBust4. CompetitionfromAbroad5. NaturalCatastrophes

Top Profits Recorded  

1)ExxonMobil 2008 

2)ExxonMobil 2007 

3)ExxonMobil 2006 

TheExxonMobilCorporation

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CoreBusinessStrategyandInternalFactors

Exxonbreaksitscorebusinessupintothreedistinctbusinessareas.Upstreamistheexplorationand

developmentoftechnologiesrelatedtoexplorationanddrilling,Downstreamistherefiningofenergysources

intousableproductsandthedevelopmentoftechnologiesrelatedtotheseprocessesandChemicalisthe

productionofoilbasedderivativesutilizedforvariousbusinesses.Thesechemicalscanincludelubricants,

polyethyleneandbenzeneaswellasolefinsforconstructionuse.Exxonemploys79.9thousandemployees

worldwide,downfrom2007(80.8)and2006(82.1).Exxonalsohasroughly11thousandpatents,whichit

licensestoothervendorsforaprofitof$125millionperyear.

Upstreamearningsfor2008wereupovertwoandahalfbilliondollarsfrom2007intheUnitedStates.

Worldwide,earningsforUpstreamactivitiesincreasedbyalmosteightbilliondollars.Thereturnonaverage

employedcapitalincreasedeightpercentto42.6%intheUS,andincreasedbyalmostthirteenpercentto56.7%

TheExxonMobilCorporation

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worldwide.CapitalexpendituresalsoincreasedsignificantlyinUpstreamoperations.Downstreamearnings

decreasedbyalmost1.5billiondollarsin2008from2007figures.Thereturnonaverageemployedcapitalfor

Downstreamsegmentswasstillhighat31.8%.CapitalexpendituresincreasedintheUS,howeverfellworldwide

forDownstream.Chemicaloperationsalsofellin2008fromthepreviousyearby1.5billiondollars.Theaverage

returnonemployedcapitalfellto20.4%in2008.Capitalexpenditures,however,increasedforthechemical

segmentofExxon’sbusiness.

ExxonhasincreasednetincomeinDownstreamproductionsignificantly.Partofthefactorsthathave

causedtheChemicalandUpstreamnumberstofallrecentlyisthefallinpricesofbarrelsofoil.Thisdecreasein

thepriceofinputsstemsfromaglobaldropindemandthataffectssalesofsuchproducts.Exxon’sChemicaland

Upstreambusinesssegmentsarerelatedtotheoverallbusinessdemandinaneconomy,andasthedemand

TheExxonMobilCorporation

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falls,sodosalesandnetincome.Chemicalisthemostvolatilerelatedtobusinessfunctionsassomanyofits

derivativeproductsarerelatedtoconstructionandbusinessdevelopment.Netincomethroughouttheworld,

however,hasincreasedalmost15%fromJune2008toDecember2008.

Thenetincomeyearoveryeariscomparedabove.Exxonhascontinuedtogrowatasteadypacewitha

hugegrowthworldwideintermsofnetincome.Chemicalproductionappearstobedecreasingintermsofnet

incomeconsistentlyoverthepastfouryears.

TheExxonMobilCorporation

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Exxon’sfinancialpositionisextremelysolid.AsoneoffiveUScompaniesthatstillhasaAAArating,

Exxonisinastrongpositiontoraisecapitalifaneedarises.Exxonalsohasaquickratioof1.23,whichishigher

thantheindustryaverageof1.13.1Exxon’sreturnonassets,returnoninvestmentandreturnonequityareall

significantlyhigherthantheindustry,sectorandS&Pasawhole.ThelongtermdebttoequityofExxonis6.22,

whichisalsomuchlowerthantheindustrymarkof17.43orthesectormarkof61.8.Clearly,Exxonisoperating

byfinancingnewexpenditureswithprofitsandmanagementhasavoidedmanyofthecurrentproblems

associatedwithhighlyleveragedfirmsoperatingwithlotsofdebtthatnowhaspremiumsassociatedwith

renewingthesedebtobligations.

Management Effectiveness2

Company Industry Sector S&P 500 Return on Assets (TTM) 19.24 14.80 4.93 7.98 Return on Assets - 5 Yr. Avg. 17.52 13.02 6.26 8.56 Return on Investment (TTM) 25.56 18.86 6.76 11.08 Return on Investment - 5 Yr. Avg. 23.17 16.93 8.81 11.61

1Reuters.2Reuters.

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Return on Equity (TTM) 38.53 25.65 11.01 25.34 Return on Equity - 5 Yr. Avg. 33.96 23.76 12.96 20.92

CompetitiveAnalysis

ExxonhasoutperformedboththeS&Panditsindustrypeersoverthepastyear.Exxonsharesfell15%in

thepastyear,comparedtoadeclineof22%forrivalsand38%forthebenchmark.3Intheir2008AnnualReport,

Exxonhadthistosayaboutcompetitivefactors;

Exxonhassuperiorpositionsincomparisontoothercompetitorsintheindustry.Withamarketcapof

$392billion,Exxonismorethantwiceaslargeasotheroilproducersandrefiners.ThissizegivesExxonastrong

advantageineconomiesofscaleandallowsExxontooperateasamarketleader.AlthoughExxon’scurrent

3BusinessWeek,February16,2009.

“AkeycomponentoftheCorporation’scompetitiveposition,particularlygiventhecommodity‐basednatureofmanyofitsbusinesses,isExxonMobil’sabilitytomanageexpensessuccessfully.Thisrequirescontinuous

managementfocusonreducingunitcostsandimprovingefficiencyincludingthroughtechnologyimprovements,costcontrol,productivityenhancementsandregularreappraisalofourassetportfolio.” 

TheExxonMobilCorporation

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dividendyieldislowerthancomparables,Exxonhasincreaseditsdividendconsistentlyandhascontinuedto

growatarapidpace.StockbuybacksareanotherwayExxonhascontributedtoownersoverthepastyear.

Whencomparedtotopindustrycompetitorsintermsofnetincomeandnetsales,Exxonclearlyhasa

farlargerpositioninbothsalesandnetincomethananyothercompetitors(CompuStat).Thesalescomparison

ofoilcompaniesbelowshowsthebreakdownofmarketshareforeachcompany.Exxon’sclosestcompetitor,

BP,has27%ofthemarket.ThisissignificantlylowerthanExxon’sgrowing35%share.

0

50000

100000

150000

200000

250000

300000

350000

2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007

EXXONMOBILCORP CONOCOPHILLIPS CHEVRONCORP BPPLC

Exxonvs.TopIndustryCompeYtors

SumofNetIncome SumofSales

TheExxonMobilCorporation

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Exxon’scapitalexpenditurespositionislowerthantwotopcompetitors.Thisismisleading,however,

becauseExxonhasincreasedcapitalexpendituressignificantlyinrecentyears.ThestrongpositionofExxonin

termsoflongtermdebtissuancekeepsExxonfromtakingundueriskinexpansionatthecostofincreaseddebt.

Also,whencomparinglongtermdebtbelow,Exxonclearlyhasastrongpositionwithverylittleissuanceofdebt.

ThesmallsumoftotallongtermdebtwhencomparedtosalesornetincomedisplaysExxon’sdominanceinthis

industry.

35%

27%

21%

17%

OilCompanies

ExxonMobil

BP

Chevron

ConocoPhillips

SalesComparison2007

020004000600080001000012000140001600018000

BPPLC

CHEV

RON

CORP

CONOCO

PHILLI

PS

EXXO

NM

OBIL

CORP

Exxonvs.IndustryCompeYtors

SumofCapitalExpenditures

SumofLongTermDebtIssuance

SumofLongTermDebtReducmons

TheExxonMobilCorporation

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AnalystRecommendations

CurrentAnalystconsensusseesExxonasaBuy/Hold.TheimpressivepointaboutthisisthatExxon

remainsaBuy/Holddespitethecrushingrecentdropsinoilprices.Exxonhasbeenconsistentlyrankedasa

Buy/Holdbyanalystsoverthepastthreemonths.

‐3000

2000

7000

12000

17000

22000

27000

Exxonvs.IndustryCompeYtors

SumofTotalLongTermDebt

SumofLongTermDebtReducmons

SumofLongTermDebtIssuance

TheExxonMobilCorporation

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4

Valuation

4Marketwatch

TheExxonMobilCorporation

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Using the Bloomberg basic Dividend Discount Model, the valuation for Exxon Mobil comes out

to be an even $87.17 per share. This is a 23% premium to the share price of $67.20 on March 14th.

Under the Warren Buffett’s Owner’s Earnings Discount Model, the intrinsic value of Exxon comes out

to be $88.52 per share. This is also a large premium to current stock prices, leading me to believe that

Exxon is significantly undervalued. Even utilizing a sensitivity analysis demonstrates that Exxon must

have a 10% discount rate and a growth rate of 6% to be fairly valued. These numbers are not in line with

current projections.

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By averaging the betas of five large financial institutions assigned to Exxon, an average beta of

.7252 is fair.5

BloombergAdj CNBC

GoogleFinance

YahooFinance Reuters

0.816 1.05 0.57 0.56 0.63 3.626

AverageBeta 0.7252

Growth projections were found utilizing CNBC’s growth projections below.

CNBCGrowthPredictions1Year 3‐5Years

‐40.60% 22.30%

Finally, applying the above numbers to a weighted average cost of capital method in order to

yield a proper discount rate for Exxon resulted in the following numbers:

DiscountRate 50%MarginofSafety0.0871916 0.1307874

The Discount Rate then has a 50% margin of safety applied to yield conservative results.

Discount Rate Method:

K = Rf + β(Rm-Rf)

K = .0027 + .7525(.1100 - .0027)

K = 8.7% + 4.36% = 13%

5Reuters,CNBC,GoogleFinance,YahooFinance,Bloomberg.

TheExxonMobilCorporation

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Warren Buffett Way Owners' Earnings Discount Model assuming discount rate (k) of 13.50% Owner Earnings in 2008: (Use last four quarters)

Net Income $ 45,220,000,000

Depreciation and Amortization $ 12,379,000,000

Capital Expenditures $ (15,198,400,000)

Owner Earnings $ 42,400,600,000

Year: 2009

Prior Year Owner Earnings $ 42,400,600,000.0

First Stage Growth Rate (add) -40.6%

Owner Earnings $ 25,185,956,400.0

Discounted Value per annum $25,185,956,400.0 Sum of present value of owner earnings $147,030,844,634.6 Residual Value

Owner Earnings in year 5 $ 56,346,153,668.8

Second Stage Growth Rate (g) (add) 3.00%

Owner Earnings in year 6 $ 58,036,538,278.8

Capitalization rate (k-g) 10.50% Value at end of year 5 $552,728,935,989 Present Value of Residual $293,449,175,312 Intrinsic Value of Company $440,480,019,946

Shares outstanding assuming dilution 4,976,000,000 Intrinsic Value per share $88.52

TheExxonMobilCorporation

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SensitivityAnalysis

G/K 2% 4% 6% 8% 10% 12% 14%4% $33.82 $56.36 $78.90 $101.45 $123.99 $146.53 $169.086% $30.97 $51.62 $72.26 $92.91 $113.56 $134.20 $154.858% $29.58 $49.30 $69.02 $88.75 $108.47 $128.19 $147.91

10% $28.76 $47.93 $67.11 $86.28 $105.45 $124.63 $143.8012% $28.22 $47.03 $65.84 $84.65 $103.46 $122.28 $141.0914% $27.83 $46.39 $64.94 $83.50 $102.05 $120.61 $139.1616% $27.54 $45.91 $64.27 $82.63 $101.00 $119.36 $137.72

Finally, the Residual Income Valuation Model available from Bloomberg yields a theoretical

price of Exxon at $156.73 per share. This model finds the value of Exxon as much higher than the

current market price.

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Recommendation

BecauseExxonhassuchastrongpositionandhasgreatcompetitiveadvantagesintheoilsector,ithas

stayingpowerinthisindustry.Exxonalsoisundervaluedonallthreevaluationmodelsandhashadanincreasing

dividendformanyquartersconsecutively.Exxonisinvestinginmanynewpipelinesandtechnologiesandhas

becometheworld’smostprofitablecompany.Finally,manyanalystsseeandhaveseenExxonasaBuyforalong

periodoftime.ThesereasonsleadmetorecommendExxonasaBuy,however,Exxoncurrentlymakesupover

5%oftheInvestmentFund.Becauseofthis,IrecommendaHoldonExxonuntilstockpricereachesan

establishedtargetof$97ashare,andthenallsharesrepresentingmorethan5%oftheportfolioshouldbesold.

Financial Statements for XOM

CONSOLIDATED BALANCE SHEET

Note Reference Number

Dec. 31 2008

Dec. 31 2007

(millions of dollars) Assets

Current assets Cash and cash equivalents $ 31,437 $ 33,981 Marketable securities 570 519 Notes and accounts receivable,

less estimated doubtful amounts 5 24,702 36,450

Inventories Crude oil, products and

merchandise 3 9,331 8,863 Materials and supplies 2,315 2,226

Other current assets 3,911 3,924

Total current assets $ 72,266 $ 85,963 Investments, advances and long-

term receivables 7 28,556 28,194 Property, plant and equipment, at

cost, less accumulated depreciation and depletion 8 121,346 120,869

Other assets, including intangibles, net 5,884 7,056

Total assets $ 228,052 $ 242,082

TheExxonMobilCorporation

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Liabilities

Current liabilities Notes and loans payable 5 $ 2,400 $ 2,383 Accounts payable and accrued

liabilities 5 36,643 45,275 Income taxes payable 10,057 10,654

Total current liabilities $ 49,100 $ 58,312

Long-term debt 13 7,025 7,183 Postretirement benefits reserves 16 20,729 13,278 Deferred income tax liabilities 18 19,726 22,899 Other long-term obligations 13,949 14,366 Equity of minority interests 4,558 4,282

Total liabilities $ 115,087 $ 120,320

Commitments and contingencies 15

Shareholders’ equity Common stock without par value $ 5,314 $ 4,933

(9,000 million shares authorized, 8,019 million shares issued)

Earnings reinvested 265,680 228,518 Accumulated other

comprehensive income Cumulative foreign exchange

translation adjustment 1,146 7,972 Postretirement benefits

reserves adjustment (11,077 ) (5,983 ) Common stock held in treasury

(3,043 million shares in 2008 and 2,637 million shares in 2007) (148,098 ) (113,678 )

Total shareholders’

equity $ 112,965 $ 121,762

Total liabilities and shareholders’ equity $ 228,052 $ 242,082

The information in the Notes to Consolidated Financial Statements is an integral part of these statements. CONSOLIDATED STATEMENT OF CASH FLOWS

Note Reference Number

2008

2007

2006

(millions of dollars) Cash flows from operating

activities Net income

Accruing to s/h $ 45,220 $ 40,610 $ 39,500

TheExxonMobilCorporation

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Accruing to minority interests 1,647 1,005 1,051

Adjustments for noncash transactions

Depreciation and depletion 12,379 12,250 11,416

Deferred income tax charges 1,399 124 1,717

Postretirement benefits expense 57 (1,314 ) (1,787 )

Other long-term obligation (63 ) 1,065 (666 )

Dividends received greater than/(less than) equity 921 (714 ) (579 )

Changes in operational working capital

Reduction 8,641 (5,441 ) (181 ) Increase/(reduction) (5,415 ) 6,228 1,160

Net (gain) on asset sales 4 (3,757 ) (2,217 ) (1,531 ) All other items – net 490 54 628

Net cash $ 59,725 $ 52,002 $ 49,286

Cash flows from investing

activities Additions to property,

plant and equipment $ (19,318 ) $ (15,387 ) $ (15,462 ) Sales of subsidiaries,

investments and property, plant and equipment 4 5,985 4,204 3,080

Decrease in restricted cash and cash equivalents 4 — 4,604 —

Additional investments and advances (2,495 ) (3,038 ) (2,604 )

Collection of advances 574 391 756 Additions to marketable

securities (2,113 ) (646 ) — Sales of marketable

securities 1,868 144 —

Net cash used in investing activities $ (15,499 ) $ (9,728 ) $ (14,230 )

Cash flows from financing

activities Additions to long-term

debt $ 79 $ 592 $ 318 Reductions in long-term

debt (192 ) (209 ) (33 ) Additions to short-term 1,067 1,211 334

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debt Reductions in short-term

debt (1,624 ) (809 ) (451 ) Additions/(reductions) in

debt with three months or less maturity 143 (187 ) (95 )

Cash dividends to ExxonMobil shareholders (8,058 ) (7,621 ) (7,628 )

Cash dividends to minority interests (375 ) (289 ) (239 )

Changes in minority interests and sales/(purchases) of affiliate stock (419 ) (659 ) (493 )

Tax benefits related to stock-based awards 333 369 462

Common stock acquired (35,734 ) (31,822 ) (29,558 ) Common stock sold 753 1,079 1,173

Net cash used in

financing activities $ (44,027 ) $ (38,345 ) $ (36,210 )

Effects of exchange rate

changes on cash $ (2,743 ) $ 1,808 $ 727 Increase/(decrease) in cash and

cash equivalents $ (2,544 ) $ 5,737 $ (427 ) Cash and cash equivalents at

beginning of year 33,981 28,244 28,671 Cash and cash equivalents at

end of year $ 31,437 $ 33,981 $ 28,244 CONSOLIDATED STATEMENT OF INCOME

Note Reference Number

2008

2007

2006

(millions of dollars)

Revenues and other income

Sales and other operating revenue (1)

$ 459,579

$ 390,328

$

365,467

Income from equity affiliates

6

11,081

8,901

6,985

Other income (2)

6,699

5,323

5,183

Total

$ 477,359

$ 404,552

$ 377,

TheExxonMobilCorporation

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revenues 635

Costs and other deductions

Crude oil and product purchases

$ 249,454

$ 199,498

$

182,546

Production and manufacturing expenses

37,905

31,885

29,528

Selling, general and administrative expenses

15,873

14,890

14,273

Depreciation and depletion

12,379

12,250

11,416

Exploration expenses

1,451

1,469

1,181

Interest expense

673

400

654

Sales-based taxes (1)

18

34,508

31,728

30,381

Other taxes and duties

18

41,719

40,953

39,203

Income applicable

1,647

1,005

1,051

Total costs

$ 395,609

$ 334,078

$

310,233

Income before income taxes

$ 81,750

$ 70,474

$

67,402

Income taxes 18

36,530

29,864

27,902

Net income

$ 45,220

$ 40,610

$

39,500

Net income per common share (dollars)

11

$ 8.78

$ 7.36

$ 6.68

Net income per common share – assuming dilution (dollars)

11

$ 8.69

$ 7.28

$ 6.62

TheExxonMobilCorporation

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Appendices

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