First, the idea that Exxon Mobil (XOM) would ever be removed from the Dow Jones Industrial Average had never occurred to me. I thought it was a lifer, a company added to the DJIA in 1928 as Standard Oil. But markets have changed, energy is a smaller component, and the DJIA did not need both Chevron (CVX) and XOM, so the latter got the boot last month.
It has been an awful year for Exxon Mobil, which has seen its shares slide 47% year to date. Exxon Mobil's second-quarter revenue fell 52% due to lower demand and an oversupply of oil, and the company lost nearly $1.1 billion. XOM is expected to return to profitability next year and currently trades at 27x next year's consensus earnings estimates and 13x 2022 estimates.
I normally might not take a look a company such as Exxon Mobil, but it surprisingly showed up on a screen I use that identifies companies trading below tangible book value. It isn't a huge list these days; there are less than 50 companies with market caps in excess of $100 million trading below tangible book, and sitting at the top of the list is Exxon Mobil, with a current market cap of $156 billion. XOM currently trades at 0.87x tangible book. Never thought I'd see that happen.
XOM, the result of 1999 merger of Exxon and Mobil, trades at levels not seen since 2003. Even in the 2008-2009 madness, the stock never fell below $62. But this time is different, at least for now. The decline in economic activity due to the pandemic brought with it a free-fall in oil prices that were already fairly low, in part because U.S. output has risen significantly in recent years.
XOM long has been a dividend champion, raising its payout year in and year out and boasting solid yields. But in April, for the first time in 13 years, Exxon Mobil did not raise the dividend for its May payout. Even without an increase, the yield now stands at a fat 9.4%; at that level, the market may be pricing in a dividend cut. Exxon Mobil appears to be working hard to avoid a dividend cut, with measures that include cost cuts and borrowing. Indeed, its debt is up $10 billion since last quarter and $24 billon over the like quarter last year. The dividend currently costs the company $15 billion per year.
I generally am drawn to the underdogs, at least where there's a potential turnaround on the horizon or where a company has been punished beyond what it deserves. XOM is a possible new idea for me, but I'm not there just yet.