Exxon Mobil (XOM) shares forecast 2012

Exxon Mobil (XOM) shares forecast 2012 : In an earlier bullish article for BP p.l.c (BP), I controversially argued that BP's spill has been overblown and unreasonably discounted shareholder value. Comments ranged from support to political criticism to emotional cries. Regardless, since the article was published, the stock has gone up by 14.8%, beating the S&P 500. The Street consensus rates the company near a "strong buy" - a sentiment that I agree with given limited downside to multiples. On the other hand, I disagree with the bullish outlook on Exxon Mobil (XOM) for the reasons described here.

From a multiples perspective, BP is significantly cheaper than its integrated oil & gas competitor. It trades at a respective 5.7x and 6.4x past and forward earnings while offering an attractive dividend yield of 4.1%. Exxon Mobil, on the other hand, trades at a 9.6x past and forward earnings while offering a dividend yield of 2.5%. Yet another reason why BP is more undervalued is that it has greater upwards potential for margins, which are typically around 18%, compared to 28.1% for Exxon Mobil.

BP's website also notes 2011 progress - catalysts that you won't hear often about in the media given the sensationalism of the oil spill:

“These past 12 months have been our most successful for a decade in gaining new access for exploration – with 67 new exploration licences in 11 countries — and we have completed major deals to enter both Brazil and India. We have also agreed asset sales totaling $26 billion.”

BP’s refining and marketing businesses are on track to deliver record earnings in 2011. “We believe the focused, high-quality nature of our downstream businesses already make them world class, generating significant profit and cash for the group,” Dudley said. The segment will benefit further when the major upgrade of the Whiting refinery in the US is completed in 2013.

BP has made good progress in embedding enhanced safety and operational risk management throughout the company’s operations with the introduction of the new Safety & Operational Risk organisation, Dudley said. He also highlighted the new drilling standards that have been introduced for the Gulf of Mexico and globally, that all operations were under a single Operating Management System, and that most of the 48 major upstream turnarounds were now complete".

At the same time, BP is also restructuring its upstream business into three branches, which will result in greater efficiency and more centralization. Excitingly, BP aims to double exploration for upstream and remains committed to returning free cash flow to shareholders. I anticipate that margins in BP's upstream operations wall grow through cost savings and greater efficiency. The economic environment is also starting to improve crude oil prices further up from last Friday on news that China will be investing $300B to stabilize Europe.

In regards to the Macondo incident, BP may face a fine of $13.1B - but I anticipate that it will be less due to claims against Halliburton (HAL) and Transocean (RIG). A recent ruling found BP was not grossly negligent and the main cause of the spill was poor cementing. Civil proceedings are scheduled to begin in late February 2012 and liability will likely be made public in 2014 - longer than many anticipated.

Consensus estimates for BP's EPS are that it will grow by 3.7% to $6.79 in 2011, decline by 5.2% in 2012, and then grow by 12.7% in 2012. Assuming multiple of 9x and a conservative 2012 EPS of $6.33, the rough intrinsic value of the stock is $56.97, implying 37.6% upside. Even if the multiple were to hold steady at 5.7x and 2012 EPS turns out to be 5.3% below the consensus at $6.10, the stock would only fall by 16%.

Exxon Mobil third quarter adjusted earnings came to $10.3B. The firm was aggressive on capital allocation with about $5B in share repurchases and $2B in dividend distributions. Capex of $8.6B gives me greater confidence that management is optimistic about future performance while increases to scale in Iraq, Indonesia, and Canada indicate strong execution.

Consensus estimates for the firm's EPS are that it will grow by 37.6% to $8.56 in 2011, decline by 2.1% in 2012, and then grow by 6.9% in 2013. Assuming a multiple of 10x and a conservative 2012 EPS of $8.25, the rough intrinsic value of the stock is $82.50. This implies only 3.1% upside and suggests that BP has more favorable risk/reward. (source http://seekingalpha.com ) For the latest updates on the stock market, visit Stock Market Today

Exxon Mobil (XOM) stock forecast 2012, Exxon shares price 2012, Exxon shares outlook 2012, will Exxon shares prices 2012, Exxon earnings estimates for 2012, Exxon Mobil EPS 2012, Exxon shares potential upside 2012, Exxon Mobil (NYSE:XOM) stock predictions 2012 For the latest updates PRESS CTR + D or visit Stock Market news Today

Related Post: