ExxonMobil Is One of the Largest Energy Companies by Market Cap. But Is It a Buy?

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11 hours ago

Over the last 12 months, ExxonMobil generated about $340 billion in revenue.
ExxonMobil stock has significantly underperformed the S&P 500's total return over the last 10 years.
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ExxonMobil (NYSE: XOM) is one of the oldest and most iconic companies in American financial history. It's also gigantic. With a current market cap of nearly $500 billion, ExxonMobil is the 17th-largest American company overall, and the largest American energy company.
But is ExxonMobil stock a good investment? Let's dig into the bull and bear cases.
ExxonMobil bulls can point to several key points for why the stock is poised to deliver solid returns.
First, ExxonMobil's global scale and diversification make it a solid choice for investors looking for an energy sector pick. The company has operations spread over dozens of countries, including Indonesia, Guyana, Papua New Guinea, Qatar, and, of course, the United States of America.
In addition to this geographical diversification, the company enjoys diversification among its revenue streams. The company has upstream operations, focusing on exploring for and developing sources of energy. It also has downstream product divisions, which refine and sell fuel, lubricants, and other petrochemical products.
What's more, ExxonMobil does this on a massive scale. Over the last 12 months, the company generated $340 billion in revenue. All of this makes ExxonMobil of central importance to the smooth running of the world economy.
Turning more directly to its financials, the company has generated $33 billion in net income over the last 12 months and $28 billion in free cash flow. Those figures, in turn, help support the company's massive $20 billion annual share buyback program and annual dividend payments of roughly $17 billion.
For bears, the energy sector itself presents a key risk. To start, commodity prices are famously volatile, leading to difficulty in balancing growth, costs, and investments.
Similarly, geopolitical risks abound. ExxonMobil's global presence makes the company and its global assets vulnerable to war, political upheavals, and natural catastrophes. Furthermore, ExxonMobil faces an endless parade of regulatory and environmental hurdles that can send costs ballooning higher or halt production at any number of facilities.
Finally, and perhaps most importantly, ExxonMobil's stock hasn't performed very well in recent years. Since 2015, shares have logged a total return of 100%. However, that pales in comparison to the S&P 500 index, which has generated a total return of more than 246%.
ExxonMobil is one of America's most legendary companies. It has far-reaching operations and generates an astronomical amount of revenue each year.
However, despite its advantages, ExxonMobil stock has underperformed the S&P 500 for years. It is susceptable to massive risks ranging from war to natural disasters. Furthermore, much of its stock's total return comes from its dividend payments. Currently, the stock pays a quarterly dividend of $0.99 per share, amounting to a dividend yield of 3.6%. Considering that ExxonMobil stock has generated a compound annual growth rate (CAGR) of about 7.2% over the last decade, that means that roughly half of the stock's return over the last 10 years has come from its dividend alone.
So, while ExxonMobil stock might be tempting to income-seeking investors, others might want to look elsewhere.
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Jake Lerch has positions in ExxonMobil. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
ExxonMobil Is One of the Largest Energy Companies by Market Cap. But Is It a Buy? was originally published by The Motley Fool