ExxonMobil Business Quality Report (XOM) - FREE SAMPLE
NOTE: This business quality report is being provided as a free sample to free subscribers of the type of analysis available exclusively for the paid membership.
ExxonMobil is a diversified energy company with a primary focus on the exploration, production, and refining of oil and natural gas products. This ExxonMobil Business Quality Report explains the Generational ranking that Exxon received under my quality ranking system.
Basic Company Information
Company Name: ExxonMobil
Ticker: XOM
Quality Ranking: Generational (6)
Primary Reason: Infinite Durability of Worldwide Energy Demand
Size: Mega-Cap
Last Updated: 03/15/2020
Key Points:
There will always be a worldwide growing demand for energy.
ExxonMobil has the scale and resources to acquire their way into any new energy field, whether Solar or Nuclear.
They are vertically integrated allowing them to be a low-cost producer of energy.
Currently the lowest cost oil producer amongst the oil majors.
ExxonMobil Business Quality Description
ExxonMobil is a vertically integrated oil and gas company that has structured its operations to be a durable provider of energy to the world. Being a vertically integrated oil major means to own the means of oil exploration, drilling, refining, and chemical production, all within a single corporate entity. ExxonMobil combines this vertical integration with a culture of extreme long-term focus. Their mindset is to grow and acquire oil assets on a multi-decade timeframe which is critical for success within the highly cyclical oil industry.
ExxonMobil’s massive scale allows them to be the low-cost producer of oil amongst the oil majors. This provides Exxon the enormous advantage of being able to acquire competitors during the oil market downturns and expand the scope of their own business. When competitors are losing money on every barrel of oil sold, ExxonMobil will still be able to pay a dividend to shareholders.
Exxon Mobil’s culture sets it apart from the other oil majors
ExxonMobil is the best of the oil majors in terms of long-term mindset and culture. They have paid a continuous dividend for 107 years since 1911. That dividend has also grown annually since 1982, with an annual growth rate of 6.3%. This is a company which has made a religion out of paying its dividend and raising it each year.
While there are other companies with similar records, there are very few cyclical companies that can claim the same.
It is hard to overstate the importance of culture when it comes to evaluating the quality of a business. Culture can provide immense benefits to shareholders and a competitive advantage in terms of market power. ExxonMobil has perfected a long-term mindset culture, which is a critical criteria for a business to attain a Generational quality rating.
Why ExxonMobil doesn’t deserve a lower quality rating
The next lowest quality rating is an “excellent quality” business. The key differentiator between an excellent business and a generational business it the long-term durability of after-tax after-inflation owner’s earnings.
There are many reasons to NOT give ExxonMobil my highest quality rating. These include massive competition, a clear lack of pricing power, and the high capital intensity of the business model. However, these are all overshadowed by the fact that ExxonMobil produces a product that has an eternal demand: Energy.
ExxonMobil is the strongest public energy company and has a culture built around maintaining that advantage. That is why ExxonMobil is a Generational Quality company. ExxonMobil is one of the few companies that once you have purchased shares, you should be happy to never sell them again. This is a company that is best owned for the rest of your life.
Why ExxonMobil doesn’t deserve a higher quality rating
A “generational quality” business is the highest ranking in my business quality ranking system. Therefore, there is no higher-ranking available for Exxon to attain.
References:
Joshua Kennon’s discussion of Investing in Oil Stocks
Episode 12 of the DIY Investing Podcast: Investing in the Oil Majors
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