ExxonMobil: A Resilient Leader in the Energy Industry

Even well-managed businesses encounter challenges and setbacks eventually. Market conditions evolve, and no company is immune to these changes. However, the most successful companies navigate tough times effectively, positioning themselves to benefit when the market rebounds.

ExxonMobil (XOM -0.53%) exemplifies a well-managed company that has successfully weathered these ups and downs. This article provides evidence that ExxonMobil is once again at the top of its game.

Understanding ExxonMobil's Operations

ExxonMobil operates as one of the largest energy companies globally, boasting a market capitalization of almost $500 billion. Its operations extend beyond the mere extraction of oil and natural gas; it encompasses transportation of these resources through pipelines and processing them into end products within its chemicals and refining sectors, which are essential parts of the energy industry.

This comprehensive or integrated business model offers significant advantages.

Since oil and natural gas markets are notorious for their price volatility, companies that solely focus on oil production, termed upstream activities, typically experience significant fluctuations in profitability. By diversifying with midstream and downstream operations, ExxonMobil can mitigate some of these profit swings. While commodity prices are still the primary influence on performance, this diversification helps stabilize results.

Moreover, ExxonMobil maintains a conservative financial approach, demonstrated by its low debt-to-equity ratio of 0.14. This low ratio is uncommon for large corporations and allows the company to leverage its balance sheet effectively during downturns.

This capacity to borrow means ExxonMobil can continue investing in its business and maintain its dividends, even when times are tough. Historically, when oil prices recover, which they tend to do, management is able to pay down the debt incurred during challenging periods.

Engineered for Endurance and Growth

ExxonMobil's structure equips it to endure the inevitable difficulties faced within the energy sector. This resilience represents a significant part of its success story.

Additionally, Exxon has a proven track record in operational execution. This is encapsulated in its return on capital employed (ROCE), a key performance indicator that assesses how effectively a company utilizes its shareholders' investments.

ExxonMobil's ROCE has consistently ranked among the best within its peer group, demonstrating a strong history of efficient capital use.

However, like all businesses, ExxonMobil has experienced both highs and lows. Historically, it began with top-tier ROCE and underwent fluctuations. Despite facing challenges, strategic capital investments have permitted the company to rebalance and regain a strong position, now ranking close to European competitor TotalEnergies in ROCE.

Throughout these fluctuations, ExxonMobil has maintained a steady dividend growth. This consistency provided a reliable source of income for investors waiting for the company to recover. Ensuring a healthy portfolio often requires buying and selling assets effectively. Currently, the dividend yield stands at an attractive 3.5%.

For long-term income investors seeking exposure to the energy sector, ExxonMobil remains a solid option. Given its historical performance, it tends to be a dependable investment irrespective of market conditions.

It's worth noting that these stocks may offer the best value during downturns or when performance deviates from historical norms. Intriguingly, value-focused investors should consider waiting for market adjustments, given Exxon's current leading ROCE.

Preparing for Future Challenges

At present, ExxonMobil enjoys favorable business performance, as indicated by its strong ROCE compared to peers. However, challenges are part of the cycle, and the company will face tough times again. When such situations arise, ExxonMobil's true resilience will become apparent. History shows that management is adept at implementing necessary adjustments to keep the company on track.

This capability reflects what makes ExxonMobil an exceptional company. Over the past four decades, despite operating in a volatile industry, the firm has successfully increased its dividends annually.

Note that the author has interests in TotalEnergies. Other companies mentioned include Chevron and BP.

ExxonMobil, Energy, Investment