Dieter Bury

I assign a Buy investment rating to Exxon Mobil Corporation (NYSE:XOM). In five years' time, I expect XOM to deliver much higher earnings and cash flow in line with management guidance. The key catalyst to re-rate Exxon Mobil's shares is better-than-expected shareholder capital return going forward. With XOM's debt-to-capital ratio already at a relatively low 21%, I am of the view that Exxon Mobil will prioritize capital return over deleveraging.

Exxon Mobil is growing fast, as seen with the company's full-year FY 2021 financial results released on February 1, 2022. Specifically, XOM has increased its bottom line, cash flow and shareholder capital return in a significant manner.

XOM has turned around from a net loss of -$22.4 billion in fiscal 2020 to generate a positive net profit of $23.0 billion in the most recent fiscal year. If impairments, and non-recurring, non-cash charges were excluded, XOM's FY 2020 adjusted net loss would have been -$1.4 billion instead. In any case, Exxon Mobil has already reversed from (headline or adjusted) losses in the prior fiscal year.

Furthermore, Exxon Mobil's FY 2021 net income was also +61% higher than its FY 2019 earnings of $14.3 billion. In its FY 2021 earnings presentation slides, XOM attributed most of the improvement in its bottom line to "price and margin improvement driven by demand recovery." This is not surprising, considering the recovery in energy markets in 2021 as the pandemic eased.

Exxon Mobil's operating cash flow also increased from $17.1 billion in FY 2020 to $48.1 billion in FY 2021, in tandem with earnings growth. Notably, XOM's fiscal 2021 operating cash flow was the highest for the company in the past nine years. The company also achieved a free cash flow of $37.9 billion in the recent fiscal year.

XOM also raised the company's full-year dividend per share from $3.48 for FY 2020 to $3.49 for FY 2021. It is noteworthy that this is the 39th year running that Exxon Mobil has increased its annual dividend in absolute terms.

In the subsequent two sections of the article, I assess Exxon Mobil's five-year financial outlook and other key metrics as per the company's management guidance revealed at Exxon Mobil's 2022 Investor Day.

XOM hosted the company's 2022 Investor Day on March 2, 2022, and if management's expectations of Exxon Mobil's future growth prospects are right, the company should witness meaningful bottom line expansion in five years' time.

Exxon Mobil's 2022 Investor Day Guidance For Future Earnings Growth

XOM's 2022 Investor Day Presentation

As per the chart presented above, Exxon Mobil thinks that the company's earnings should rise from $22.4 billion in FY 2021 to above $30 billion by FY 2027. Specifically, XOM's net profit is guided to increase by +100% between fiscal 2019 and FY 2025, prior to expanding by an additional +20% between FY 2025 and FY 2027. There are three key drivers of XOM's expected bottom line growth in the next five years.

Firstly, XOM has set a goal of achieving $9 billion in cost savings every year in 2023 as compared to 2019. At its 2022 Investor Day Call, Exxon Mobil noted that "the combination of the downstream and chemical businesses and the centralization of our technology, engineering and above-site operations" are the key factors that will help to drive the company's expenses lower in the future. As disclosed in its Investor Day presentation, Exxon Mobil has already been able to deliver $4.9 billion (of the $9 billion target) in yearly expense reductions by 2021.

Secondly, a targeted increase in production volumes will also be another key earnings growth driver for XOM. Exxon Mobil guided at its 2022 Investor Day Call that its upstream production will expand from "3.8 million oil-equivalent barrels per day" in 2022 to "4.2 million oil-equivalent barrels" in 2027. Over half of the planned production volume growth will be contributed by its Guyana and Permian Basin assets, the Bacalhau field in Brazil and its LNG (Liquefied Natural Gas) asset portfolio.

Thirdly, Exxon Mobil should see overall profit margin improvement thanks to a more favorable production and product mix going forward. As highlighted earlier, XOM's Guyana, Permian Basin and Bacalhau assets will account for an increasing proportion of the upstream business' production volume in the future, and the company has referred to these as "low-cost-per-barrel assets" at its 2022 Investor Day Call. With respect to its product solutions business, XOM is also optimizing its mix with plans to reduce the proportion of distillate, fuel oil and gasoline, and increase the contribution of chemical feed, biofuels and lubricants which the company deems as "higher-value products." Such changes in mix are supportive of XOM's future profit margin expansion and earnings growth.

In my opinion, XOM's expectations of earnings growth in the next five years are realistic and achievable.

I discuss about Exxon Mobil's other key metrics relating to cash flow and shareholder capital return in the next section.

In line with the expected earnings growth for XOM in the intermediate term, the company's management is of the view that Exxon Mobil can double its operating cash flow from $29.7 billion in FY 2019 to close to $60 billion by FY 2027. This will potentially help to drive an increase in the capital returned to shareholders for XOM.

The key metrics to watch relate to excess cash flow and the potential for greater-than-expected shareholder capital return in the medium term.

Exxon Mobil noted at its 2022 Investor Day Call that "at a real Brent price of $60 per barrel, we generate about $100 billion of cash (between FY 2022 and FY 2027) in excess of CapEx (capital expenditures) and (current regular) dividend distributions." The $100 billion in excess cash flow is equivalent to approximately 28% of XOM's current market capitalization.

While a certain proportion of the $100 billion might be allocated to debt reduction, I think that most of the excess cash flow is very likely to be returned to shareholders in the form of increased dividends (above the current level of dividend payouts amounting to around $15 billion per year) and share repurchases. This is because XOM has already met its financial leverage target (20-25% debt-to-capital ratio) with its current debt-to-capital ratio of 21%.

Earlier, Exxon Mobil disclosed a new $10 billion share buyback program when it released its full-year FY 2021 financial results. Given the substantial amount of excess cash flow it is expected to generate, there is a high likelihood that XOM can complete the current $10 billion repurchase program in a shorter-than-expected period of time and even initiate another new share buyback program in the future.

In assessing whether Exxon Mobil is a good investment candidate, investors have to be assured that XOM has a sustainable future.

There are two key aspects relating to a sustainable future for the company from the perspective of investors. Firstly, investors should be able to derive a significant part of their expected investment returns from dividends and buybacks, and not be reliant on capital appreciation (which is less sustainable given share price volatility). Secondly, as ESG (Environmental, Social, and Governance) factors become more important considerations for investors, it is relevant to look at Exxon Mobil's sustainability efforts,

With respect to shareholder capital return, Exxon Mobil currently offers a reasonably attractive consensus forward FY 2022 dividend yield of 4.3% as per S&P Capital IQ data. As mentioned in the preceding section, XOM is expected to generate approximately $100 billion in excess cash flow over the next couple of years, and this could potentially be allocated to more buybacks and higher dividends.

In terms of sustainability efforts, Exxon Mobil guided for investments in excess of $15 billion in the next few years with regards to lower emissions; the full breakdown of such investments in presented in the chart below. As highlighted in its 2022 Investor Day media release, XOM targets to "reduce company-wide absolute greenhouse gas emissions by an estimated 20%" in the medium to long term.

Breakdown Of Investments Relating To Sustainability In The Next Few Years

XOM's 2022 Investor Day Presentation

In a nutshell, I think Exxon Mobil has a sustainable future in terms of both shareholder capital return and sustainability efforts.

Right off the bat, your internet connection type may impact your download speeds. This, of course, can come down to pricing and availability in your particular area.

As dial-up connections to the internet only require use of a phone network, it is a preferred option for those in rural or remote areas. By modern standards, dial-up speeds are considered sluggish.

Digital subscriber lines, or DSL, use infrastructure from phone lines to transmit data. Because of this, download speeds can be affected by the age and quality of your wiring. DSL is also affected by the distance between your device and your provider’s closest exchange.

Cable internet access uses the same infrastructure as cable television. In other words, the same type of coaxial cables—composed of plastic and copper—are used. These services are usually available for subscription via cable TV providers. That said, you may be sharing your bandwidth/download capacity with other users in your area.

In contrast to metal/copper cables, fiber-optic cables are made of glass which can transmit data at faster speeds. The downside is that fiber is more expensive than cable due to its limited availability.

Decent download speeds are achievable with satellite, but they’re generally slower than cable and fiber-optic. This is unsurprising as satellites transmit data through the air, making it more susceptible to interference from distance or weather.

While wireless 5G services can be quite fast for downloading, they are generally at the mercy of network availability or outages. Network providers also tend to throttle connection speeds after certain times of the day.

Your download speed may be affected by your internet service provider (ISP) and/or your current plan. You may have, for example, exceeded your current plan’s data limit.

Conversely, your ISP may also be throttling your internet connection. This occurs when your ISP deliberately slows down your connection based on what it perceives you are doing online. Streaming services, for example, use a lot of bandwidth and ISPs will claim they are limiting your bandwidth to relieve network congestion.

The physical layout of your home or office may lead to connection and download issues. This can include the distance between your router and your devices, barriers like walls or floors, or interference from other electronic devices.

Old and outdated devices can, in some cases, hinder your ability to take full advantage of your download speeds. This includes devices like older desktops, laptops, or consoles that may not be equipped with the right hardware to handle faster download and transfer speeds.

Download speeds may be heavily affected on websites that aren’t up to date, poorly constructed, or contain invasive ads. Conversely, your browser could be the culprit–either a browser extension or the amount of tabs you have open could be slowing everything down.

This should be your first port of call. Restarting your desktop or laptop can help to fix a variety of possible issues that could affect your downloading speed by shutting down unseen background processes.

Unnecessary resource-heavy background programs could be eating away at your bandwidth, causing slow download speeds. Closing unused programs individually through your device manager one by one could do the trick.

Cookies are pieces of data that are stored on your web browser and designed to improve your browser experience by remembering your browsing behavior and preferences. If, however, your browser’s cache is bogged down by too many cookies, your download speeds will suffer.

Here’s how you can clear cache and cookies:

Click ⋮ then Settings > Privacy and security > Clear browsing data. From here, select Cookies and other site data and Cached images and files and choose the time range which you’d like to delete, and then click Clear data.

Click ≡ then Settings > Privacy & Security. From here, click Clear Data… under Cookies and Site Data. Then select Cookies and Site Data and Cached Web Content, and then click Clear.

Click ≡ then Settings > Privacy and security > Clear browsing data. From here, select Cookies and other site data and Cached images and files and choose the time range which you’d like to delete, and then click Clear data.

Click ⋯ then Settings > Privacy, search, and services. From here, click Choose what to clear under Clear browsing data. Then select Cookies and other site data and Cached images and files, and then click Clear now.

If all of the devices on your network are experiencing slower download speeds, there’s a chance your router could be to blame. You should, of course, try restarting your router first to see if that solves the problem. If not, here are a few other basic tips to try:

Updating your router’s firmware (software) may help to increase your speeds. Most routers have a firmware update option available for an admin account. For older routers, you may need to download and perform the update directly from the manufacturer.

In some cases, background apps or software could be causing your download speeds to slow down. To solve this, you can log into your router’s admin account and modify the Quality of Service settings to prioritize which apps you want to assign more bandwidth to. Once complete, simply reset your router.

Wi-Fi routers most commonly support 2.4 GHz and 5GHz frequencies. The 2.4GHz frequency will cover a large area, about 150-300 feet in distance, while 5GHz will cover a smaller area, about 50 feet in distance, but with faster speeds. Where possible, stay close to the router and opt for a 5GHz connection.

Read more: 2.4 vs. 5 GHz Wi-Fi: Are you using the right one?, How to boost Wi-Fi signal at home to get faster internet

Is your Wi-Fi giving you grief? Switching over to a connection over an Ethernet cable will provide a faster and more stable internet connection. While it may not be a convenient option in the long run, downloading over an Ethernet connection will provide you with much faster speeds than wirelessly over Wi-Fi, while also being more secure from attackers.

Perform an audit of all of the devices connected to your network to determine if any are hogging bandwidth. Unsurprisingly, the more devices that are connected to and using your network, the slower things will be. Devices like game consoles could be downloading large updates in the background without you realizing it.

A sudden increase in data consumption on your devices can be an indication that a virus is compromising your bandwidth. If infected, viruses can run processes in the background of your devices and download harmful programs.

Read more: How to find and remove malware on your Android device

Download managers are a great way to monitor and directly control your downloads separately from your browser. If you’re actively downloading multiple files, you should consider pausing and queuing your downloads so that you can focus on downloading one file at a time. By keeping multiple downloads running simultaneously, network speeds are spread across each individual download which can slow them down.

Solving your slow download speeds could be as simple as upgrading your internet plan. You may have exceeded your monthly data allowance, which will result in your ISP throttling your internet connection. Or, your current plan is too slow and you need to upgrade to a plan with higher speeds.

Using a VPN for PC is another way to give your download speeds a boost. A VPN will send your data through an encrypted tunnel that nobody can see into—including your ISP. Because your ISP won’t be able to see that you are downloading a large amount of data, it won’t be able to throttle that traffic to preserve bandwidth.

In fact, we know the perfect VPN.

Read more: Why is my internet so slow? And how to fix it