So you say you want to invest in the top 10 oil stocks ExxonMobil (NYSE:XOM) — but first you want assurance that the stock will go up after you buy it, not down? Then today might be your lucky day! ExxonMobil management just released a forecast that lays out in clear, concise numbers how it expects its business to perform both next year and over the next five years.
Wall Street analysts have also spoken out about Exxon’s prediction. Put these two predictions together and you should get a good idea of where Exxon stock will be in five years.
ExxonMobil reported third-quarter results last month, and the news wasn’t bad. Despite generally falling oil prices, Exxon managed to keep its revenue decline below 1 percentage point. Profits took a hit, down 15% year-over-year. But that hasn’t stopped Exxon from rewarding its shareholders with a rising dividend, and Exxon now pays a dividend yield of 3.7%, which is more than double the average return on the stock market. S&P500.
Free cash flow (FCF) was a robust $11.3 billion, significantly higher than reported net profit in the quarter. For the year to date, Exxon has generated $26.4 billion in positive free cash flow – about 97% of its reported net profit.
Exxon characterized its third-quarter results as “industry leading,” and the company plans to continue investing in the new year to maintain that lead, even as it continues to invest in its own stock to reward shareholders.
By 2025, Exxon plans to increase capital expenditures to somewhere between $27 billion and $29 billion, even as it spends $20 billion more on share buybacks – concentrating profits for its shareholders on a smaller number of outstanding shares.
In addition, the company committed to investing between $28 billion and $33 billion in annual investments over the next five years. Management has not said for sure how long it will continue to buy back shares, but did pledge to spend another $20 billion on share buybacks at least through 2026.
If we maintain this pace of investment in both the company and shareholders through 2030, Exxon predicts, it will result in earnings $20 billion higher than 2024, and $30 billion more operating cash flow. And while Exxon’s 2024 numbers are not yet fully known, based on analyst forecasts, this should amount to approximately $54.5 billion in revenues in fiscal year 2030 (total growth of 58%) and 87.4 billion dollars in operating cash flow in fiscal year 2030.
Even assuming that Exxon still invests about $33 billion in capital expenditures that year, this would mean that Exxon’s free cash flow will be $54.4 billion in 2030 – essentially supporting every $1 of net revenue with $1 in real cash profit.
But speaking of analyst estimates, what does Wall Street think of these numbers? Well, here’s where things get interesting: It turns out that if Exxon comes anywhere close to what it promises, Wall Street analysts will be completely baffled.
Looking at S&P Global Market Intelligence’s long-term forecasts, it appears that analysts are currently calculating that Exxon will earn just $42.2 billion in 2030, and predict free cash flow of not $54.4 billion, but only $38.7 billion dollars.
Long story short: Exxon promises to beat Wall Street earnings expectations by 29% in 2030 while generating 40% more free cash flow!
What does this all mean for investors?
With a share price of less than 14 times earnings, a dividend yield of almost 4%, and expected earnings growth of about 4.5% per year over the next decade, Exxon stock seems a bit pricey right now. And with free cash flow currently lagging net income somewhat, the stock’s price-to-free cash flow ratio looks even less attractive.
However, Exxon now promises to exceed these analyst estimates, grow its profits steadily at an annual rate of 10% over the next five to six years, grow its cash flow by 8% and cut enough costs to close the gap between reported figures close. profit and actual free cash flow.
Assuming Exxon can deliver on its promises, its current valuation of around 14 times both earnings and free cash flow seems like a good deal to me for a stock that grows at 10% and pays a dividend of almost 4%. If all goes according to plan, I expect the company’s share price to continue to grow as earnings and free cash flow increase.
In five years, Exxon shares should be worth much more than they cost today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Where will ExxonMobil be in five years? was originally published by The Motley Fool
