ExxonMobil (XOM -7.35%) is the 800-pound gorilla in the oil patch. The energy giant currently has a market cap of more than $500 billion. That's over $200 billion more than its next largest rival, Chevron, at $290 billion. It's the most profitable company in the sector by a wide margin. Last year, it generated $34 billion in earnings and $55 billion in operating cash flow, which led all international oil companies (IOCs).
ExxonMobil is halfway to joining the trillion-dollar market cap club. Here's a look at whether it has enough fuel to grow that big in the future.
NYSE: XOM
Key Data Points
The biggest is growing bigger
ExxonMobil has grown into the largest IOC through a combination of organic investment and acquisitions. The company invests tens of billions of dollars each year into capital projects to develop its oil and gas resources and expand its product solutions business, which encompasses refining and chemicals operations. It has also closed a number of high-profile acquisitions over the years to enhance its portfolio and scale. The most recent deal was its $59.5 billion all-stock acquisition of Pioneer Natural Resources to boost its position in the prolific Permian Basin of Texas and New Mexico.
The oil and gas giant plans to invest another $27 billion to $29 billion into capital projects this year and an average of $28 billion to $33 billion in the 2026-to-2030 timeframe. This investment level should grow the company's oil and gas production to an average of 5.4 million barrels of oil equivalent (BOE) per day by 2030, up from 4.3 million BOE/d last year. More than 60% of that production will come from advantaged resources, which are its highest margin assets, up from over 50% last year. Exxon also plans to significantly expand its product solutions business, with a focus on investing in advantaged projects that grow its capacity to produce and sell high-value products.
These growth-focused investments, when combined with Exxon's voracious focus on capturing structural cost savings, should significantly enhance the business' earnings capacity. By 2030, Exxon expects to add an incremental $20 billion in earnings and $30 billion in cash flow. That's a nearly 60% increase from last year's baseline. It could grow even faster if commodity prices increase or it makes another needle-moving acquisition.
Building the energy company of the future
Oil and gas will continue to be Exxon's main profit and value drivers in the coming years. However, the company is also starting to ramp up its investments to support the lower carbon energy the world will need in the future. It's building businesses around carbon capture and storage, hydrogen, lithium, alternative fuels, advanced recycling, and other lower-carbon energy products and solutions.
These new businesses should start contributing to Exxon's earnings over the next few years. The company sees a potential for $3 billion of earnings contribution by 2030, growing to $13 billion by 2040. That number could be much bigger by 2050. Exxon sees more than a $2.3 trillion potential addressable market served by its new products within the next quarter century.
A great company for an even better price
Exxon isn't just an elite oil company; it's elite compared with other industrial companies. It's growing significantly faster than the average industrial company in the S&P 500 while maintaining a leading balance sheet. Fast-growing companies with strong financial profiles typically trade at a premium valuation. However, that's not the case with ExxonMobil:
Image source: ExxonMobil.
As the chart on the right-hand side of that slide showcases, Exxon's valuation has headed in the opposite direction as the average industrial stock over the past several years. Its valuation multiple has steadily declined even though Exxon is firing on all cylinders.
Given its exposure to volatile oil and gas prices, Exxon probably shouldn't trade at a valuation multiple as high as most industrial companies. However, its valuation shouldn't be heading lower, given the growth it has ahead, especially from lower volatile earnings drivers such as its products solutions business and lower carbon energy platform. The company has the potential for meaningful valuation expansion in the future as the market realizes it trades too cheaply for the growth it has ahead.
ExxonMobil looks like a $1 trillion stock in the making
ExxonMobil expects to grow its earnings by about 60% by 2030, fueled by its heavy investment in growing its advantaged resources and cost-cutting efforts. On top of that, the company is building several new businesses that should fuel growth for years to come. Add in the fact that it trades at such a low valuation, and Exxon certainly has the fuel to grow to a $1 trillion market cap company in the future.
