Net Asset Value (NAV) for Exxon (XOM)

Based on MarketConsensus News calculations, Exxon (XOM) stock has a Net Asset Value (NAV) of $65 per share. The stock is currently trading around $90 per share. With a $30+ differential between its NAV and current value, we believe the stock is currently overvalued. Based on this, is the stock still a Buy, Sell or Hold?

The Pros and Cons of Using NAV to Value Stocks

Our above "overbought" conclusion may seem to conflict with a statement we made in a different post (Is Exxon Mobile Stock a Potential Buy in 2013?) that XOM’s NAV analysis was very encouraging. Let's explain ourselves. It's the assumptions in the NAV calculation that we're specifically talking about. The stock market often has a mind of its own. Sometimes, through an NAV analysis we can gather something most market participants don't know and, conversely, they may know something we don’t. However, the reason we introduced the NAV to analyze XOM stock is because it is a major valuation metric for energy companies especially upstream oil stocks.

But wait, isn't XOM a major Integrated Oil & Gas company? Yes it is. However, this graphic from the company's 2011 annual report will help illustrate our point that XOM is heavily involved in upstream and this makes the NAV very appropriate.

Exxon Mobil Financial Highlights
2.3 Financial Highlights IMG

Unlike Discounted Cash Flow (DCF) analysis, NAV focuses on asset depletion as is the case with most energy companies. When we conducted a conservative analysis using declining growth rates (5-10 Years), we obtained the $65 per share figure. (XOM-NAV-Conservative Analysis– Excel 2007/2010(XOM-NAV-Conservative Analysis – Excel 97-2003

For the optimistic case, we projected growth rates of around 10% in 2022 and beyond, and ended up with an NAV of $75.88 per share. (XOM-NAV-Optimistic Analysis – Excel 2007/2010(XOM-NAV-Optimistic Analysis – Excel 97-2003

To the NAV's credit, the optimistic case actually seems plausible. The environmentalists may not agree with us, but Forbes has predicted that it will take 50 years for oil production to drop below half of its present level. Additionally, natural gas production will go strong for at least another century. So the NAV is a nice tool for a sensitivity analysis. 

Exxon Mobil is an Oil & Natural Gas Play for Years to Come

Despite the not so pretty outcome of the NAV analysis, MarketConsensus News is sticking with its "buy" rating for Exxon. It's pretty simply really: it is a high yielding oil and gas stock with an EPS of 9.69 that has been growing 3.56% on average over the last five years. And the dividend has risen by 7.7% in the same period.

(By: Vinayak Maheswaran – MarketConsensus News Contributor)