Bullish on Exxon Mobil (finally)

I have been negative on Big Oil but there have been some monumental moves lately. Some stocks are trading at “monthly” oversold levels not seen the 1960’s.

At $33, my calculations tell me you can Buy Exxon Mobil at its intrinsic value.

So this example turns XOM into a bond and still have some optionality.

Buy stock at $33 and
Buy January 2023 $30 strike Put option for $6.50.

Dividends are slated to be 87 cents per quarter. You’ll earn $7.83 over 9 quarterly dividends.

And the difference paid between your put option insurance and dividends earned is $1.33 or equivalent to 4% of the price paid for the stock today.

Over the next 2 1/4 years, this cash difference easily beats (even if it’s taxed) the 0.35% yield on the 5 year U.S. Government Treasury bond.

And the optionality is limitless, ranging from whether the oil price rises to $70, XOM returning to the Dow Jones Industrial Average or improving free cash flow, margins and EBITDA from a low base.

With a market cap of $145 billion (net debt of $57 bn) thus an Enterprise Value of $202 bn on 2019 revenues of $214 bn (2020 likely to be $185 bn) and EBITDA of $30 bn.

The Queen Mary is about to do a U-turn.

I’ll write about Gazprom & Russian oil, later.

October 6, 2020
by Rob Zdravevski
rob@karriasset.com.au