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

My Oil Juxtaposition

I am (long term) bullish on the price of Brent crude oil, which will be another note for another day…..

but I am bearish on the equity prices of large oil companies, especially those listed in the U.S. due to their declining oil reserves, poor exploration and production cost management, awful capital allocation towards acquisitions, debt laden balance sheets while insisting on maintaining historical dividend distributions at any cost.

Furthermore, a recent brainstorm with a client (and friend) confirms the industry is operating with technology and a mentality that hasn’t changed for 50 years which has resulted in a dearth of innovation and lack of efficiencies being sought.

Shareholders of Exxon Mobil, Chevron, ConocoPhillips, Occidental, Apache and the like, should allocate ample time to assess their holdings, hedging and strategy,

while shareholders of oil field service companies…….

August 20, 2020
by Rob Zdravevski
rob@karriasset.com.au

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