Big Oil is back in the spotlight. Exxon Mobil Corporation (XOM) saw first quarter profit jump 69% on high crude prices and a record quarter for its chemical division. Yet this Zacks #1 Rank (strong buy) is still cheap with a forward P/E of just 10.
125 Years in the Energy Business
Exxon is one of the world’s largest energy companies, exploring for oil and natural gas on 6 continents. The company operates upstream, in the exploration and production of oil and natural gas, as well as downstream, in the refining and distribution of fuels and lubricants.
What is little known is that the company’s petrochemical division is among the largest in the world and a significant revenue generator.
With Big Earnings Comes Big Responsibility
Recently, much as been made in the media about Big Oil, and Exxon’s in particular, outsized earnings and profit growth.
Yet for years, Exxon has been rewarding its shareholders with a piece of the pie.
In the first quarter of 2011, the company bought back $5 billion in shares. It intends to purchase another $5 billion in the second quarter.
Its 44 cent dividend was also 5% higher than the first quarter of 2010.
Additionally, the company announced it was raising the second quarter dividend to 47 cents from 44 cents, the 29th consecutive year the company has raised the dividend. It currently yields about 2%.
Best Quarter Since 2008
Not surprisingly, given the rise in oil prices, Exxon saw earnings rise 69% to $10.6 billion from $6.3 billion in the first quarter of 2010.
Production rose 10% driven by assets in Qatar.
Chemicals, the building blocks of the recovery, have been hot.
The chemical division saw record earnings of $1.52 billion, up 30.4% from $889 million in the first quarter of 2010. Improved margins helped boost the sector.
Exxon Beat Estimates For 4th Quarter in a Row
Exxon surprised on the Zacks Consensus by 8.7% in the first quarter. Earnings per share were $2.14 compared to the consensus of $2.05 per share.
It has surprised, on average, 4.4% over the prior 4 quarters.
Zacks Consensus Estimates Rise
The analysts liked what they heard for the first quarter and with crude prices even higher, it’s not surprising that the Zacks Consensus Estimates have risen.
8 estimates have moved higher for 2011 over the past week, pushing the Zacks Consensus up to $8.60 from $8.48 per share.
That is earnings growth of 38.3%.
The growth, so far, is expected to be more muted in 2012. While the 2012 Zacks Consensus has risen to $9.21 per share from $9.12 over the last week, that is growth of just 7%.
Earnings Last Peaked in 2008
Given that crude topped out at $147 a barrel in 2008, it’s not surprising to see that Exxon’s earnings also peaked in 2008.
But the estimates are now again on the rise.
Will we see a repeat of the record earnings soon? You can see the earnings estimates have really rebounded off the recession lows.
Exxon Is Still Cheap
Even though shares have rebounded in the last 6 months, Exxon still has attractive valuations.
All of its key metrics point to it being a value stock.
In addition to a P/E of just 10, it has a price-to-book ratio of 2.9, which is under the 3.0 cut-off.
The company also has an impressive return on equity (ROE) of 23.3% which far outpaces its peers. Chevron (CVX) has a ROE of 19.8%, ConocoPhillips (COP) of 13.7% and Occidental Petroleum (OXY) of 16.1%.
[The author of this article owns shares of XOM and COP.]
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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