Exxon Mobil warrants a `buy' from analysts

Your Money

July 30, 2006|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICES

I think it is great the way my Exxon Mobil Corp. shares have been doing, but it seems like this can't last. Should I continue to hold?

- K.V., via the Internet

Exxon Mobil is the largest firm in the oil and gas business at a time when global turmoil has pushed energy prices to record levels, which doesn't translate to either popularity or freedom from troubles.

Federal and state authorities have asked the company for $92 million to clean the remaining oil from the devastating Exxon Valdez tanker grounding of 17 years ago. The nation's largest oil spill emptied 11 million gallons of crude oil into Alaska's Prince William Sound and onto the beach.

Many shareholders are up in arms over the nearly $147 million paid last year to retiring top executive Lee Raymond in salary, bonuses and lump sum pension. In protest, they approved an advisory resolution that directors must win a majority vote to be elected. They also withheld substantial numbers of votes from directors who approved that package.

Its employee pension plan is also $11.2 billion short of projected obligations despite the fact the company has about $30 billion in cash and an AAA credit rating. The firm said it is in compliance with labor laws and its financial strength is the best pension security possible.

To meet the world's growing demand for oil, large producers have had to move to more expensive, higher-risk fields, which could reduce future earnings. And despite the recent price increases, oil remains a highly volatile and unpredictable commodity.

Shares of Exxon Mobil (XOM) are up 14 percent this year, after gains of 10 percent last year, 25 percent in 2004 and 17 percent in 2003. Don't assume that oil stocks never go down: They declined 11 percent in 2002 and 10 percent in 2001.

Though it faces many challenges, being the biggest in its industry does give Exxon Mobil economies of scale. It remains the most profitable of the major oil companies and is active in repurchasing stock and dependably paying out dividends. It also has an easy time finding global partners.

The analyst consensus is that investors should stay put. The rating on shares of Exxon Mobil is a "buy," according to Thomson Financial, consisting of nine "strong buys," eight "buys" and four "holds."

Earnings are expected to increase 15 percent this year and decline a fraction next year, which is in line with the forecast for the major integrated oil and gas industry. The five-year annualized growth rate is predicted to be 8 percent, in line with its peers.

yourmoney@tribune.com

Andrew Leckey writes for Tribune Media Services.

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