Recently loaded the 3Q19 data into my Excel SS for XOM, and I see a trend that is raising a small red flag. I say 'small' because XOM is a cash machine with a history of being able to generate excess cash even during slim times when crude prices dropped.
As you can see from this, the trend over the past 3 rolling 4Q (R4Q) trends is definitely a negative trend
The percent of CapEx being covered by Net Operational Cash AFTER dividends (including payment to non-controlling interests) has dropped under 100% for the past 2 R4Q periods
Again, not a good trend.
Perhaps the best news in their CF trending is their dividend to Net CFFO payout ratio continues to be low, meaning the dividend is well covered, and their total interest (operational interest expense plus capitalized interest for investment projects), although it has increase from about 2.5% to 3.6%, is still very small.
Which along with the payout ratio that continues under 50%...and this is good.
But perhaps the most concerning metric I track is their return on the recent investing activities
Going back to 4Q18, there has been a steady increase in CFFI/share of new investing activities, but over this period, CFFO per share has actually been declining. This is not good as CF trends go. When a company spends as much on investing activities as XOM has, one should expect to see an up-inflection in their net operational cash, which has not been the case.
XOM is financially healthy. But I'll definitely be tracing the changes in net operational CF,.
Thanks for the post, Bruce. I've traded it a couple times over the past year or so without the in-depth look you offered.
I no longer hold it.
Excellent analysis, as usual.
One thing that I like to to is get to the story behind the numbers. There’s always a reason why and the numbers don’t tell that side of the story,
Perhaps this analysis does
My read is that XOM is transitioning assets and perhaps invested before harvesting cash to pay for the new investments. I’m not as trained as you are to understand if this asset sale would solve your concern. Interested in your opinion.
(Link was found on SeekingAlpha)
Read the same nonsense about CVX having to cut its dividend 3 1/2 years ago because of a cash flow squeeze. I bought CVX at 79 with a 5.4% dividend. Since then CVX has raised the quarterly dividend twice from 1.07 to 1.16. CVX closed at 118 Friday.
I don’t expect XOM to cut its dividend because there are so many places where revenue can be generated especially with a 40% cut in the Corp tax rate.