(Idea) Exxon Mobil - Our Top Pick Among The Oil Majors

Exxon Mobil (XOM) is one of the largest integrated oil companies in the world. Its stock offers investors attractive earnings per share growth over the next five years. Those growth prospects are a continuation of a long-running trend, as XOM has managed to grow earnings more or less consistently since the 1930s.

The company’s growth prospects largely hinge on its exploration and production business and capital allocation, both of which we expect to build value for shareholders.

For such a massive organization, it’s best to focus analysis on the areas that will move the needle for earnings growth per share. In what follows, we discuss each of XOM’s operating segments and their growth prospects before moving on to the company’s capital allocation and equity valuation.

XOM currently trades at a 7.5% free cash flow yield at current commodity prices. We expect earnings to increase over the coming years due to higher oil and gas prices, improving refining margins, and improving petrochemical margins. The company sports a pristine balance sheet, a diversified asset base, and robust profitability through an entire oil market cycle.

Dividend increases and share repurchases will add to the potential upside. In light of the company’s highly probable earnings growth, we value the shares in the $140 to $150 range. Despite near-term macroeconomic headwinds and the influence of short sellers on XOM stock, we expect the shares to reach that level over the next three years, offering investors the prospect of a 12% compound annual return from their current price of $114.

Investors looking for a relatively safe stock with exposure to oil prices should consider buying XOM shares.