Will Exxon Mobil Stock Split Again? What to Know (NYSE:XOM) (2024)

Article Thesis

Exxon Mobil Corporation (NYSE:XOM) has put a lot of effort into reducing its share count in the past, which allowed the company to split its stock from time to time. In recent years, however, free cash flows were not especially strong, and the dividend payments soaked up most of those cash flows, which is why the share count has not declined meaningfully. On top of that, Exxon Mobil's shares have moved sideways for a long period of time, which made a stock split feel unnecessary.

Going forward, Exxon Mobil seems to be well-positioned to generate growing cash flows, but buybacks will likely still not be too hefty, as Exxon Mobil also has to improve its balance sheet. I thus don't expect another stock split in the near term, although that doesn't mean that Exxon Mobil must be a bad investment at all.

XOM Stock Split History

Looking at Exxon Mobil's share price chart, we see that XOM has moved upwards relatively consistently for decades, up to around 2007. Due to these upward moves, splitting the stock regularly made sense, in order to prevent shares from getting too expensive. For the last 13 years or so, however, XOM has not continued to move up:

Instead, its share price today is well below the $90s that XOM hit more than a decade ago. This can be explained by factors such as lower oil prices, compared to the highs that were hit in 2008, but some capital allocation mistakes, such as the overpriced takeover of XTO Energy, played a role as well. Due to the unconvincing share price performance in more than a decade, there was no need to split the stock further, which is why the last stock split occurred in 2001:

Source: exxonmobil.com

We see that Exxon Mobil split its stock 7 times between 1951 and 2001, so about once every seven years. If XOM would have kept that pace, about 2-3 stock splits would have occurred between 2001 and today, but there were none - a result of the weak share price performance in that time frame. In fact, shares of Exxon Mobil Corporation only rose by 42% since June 2001, when the last stock split occurred, and today. A 42% stock price increase in 20 years equates to annual returns of 1.8%, which is less than the rate of inflation - and there is no need to split the stock when it only climbs at that rate.

Looking at the number of outstanding shares, we see that Exxon Mobil has been an avid repurchaser of shares for prolonged periods in the past, e.g. between 1980 and 2000:

Note: This chart uses today's split-adjusted shares

During that time frame, the company split its shares several times, which made sense, as this allowed for increased liquidity and a large float during times when the share count kept declining.

The merger with Mobil made XOM's share count climb to around 7 billion shares in 1999 (adjusted for the split in 2001), but even though the share count has declined by a lot since 1999 and 2015, there wasn't a need to split shares another time, as XOM's share price had not moved up by a lot. Following the oil price crash in 2014-2015, Exxon Mobil has not lowered its share count meaningfully, and its shares have declined in that period, which made a stock split even less necessary - after all, why would the company split its stock, if it wasn't climbing anyways and if the share count was pretty constant?

Will XOM Stock Split Again

Mostly, stock splits are done due to either of the following two reasons:

- Share prices have climbed by a lot and management believes it makes sense to have more shares at a lower price per share.

- The share count has declined by a lot, and in order to increase liquidity, the company decides to split its shares.

One can argue whether that makes sense, but since this method is employed by many companies all around the world, it seems to have its merits. In Exxon Mobil's case, neither of these two reasons are at play right now, which makes me believe that a stock split is unlikely in the foreseeable future.

Exxon Mobil's share price is not really high, and in fact, it was much higher in the past, at more than $100 per share. Management did not feel a need for a stock split back then, so why would they want to split shares when they are at $60? On top of that, since Exxon Mobil's share count has not declined meaningfully in the recent past, liquidity shouldn't be a concern, either.

Exxon Mobil's last stock split was done when the company had about 3.5 billion shares pre-split, the split prior to that was done when the company had about 1.3 billion shares pre-split. Stock splits prior to that were oftentimes done at pre-split share counts that were even lower than that. Right now, with 4.2 billion shares, Exxon Mobil's share count is substantially higher, and due to no meaningful buyback activity, it is doubtful whether XOM's share count will decline to a much lower level in the foreseeable future.

A stock split can, of course, not be ruled out, and it seems very much possible that XOM eventually splits its shares again at some point in the future, but for the next couple of years, this seems like a relatively unlikely scenario to me.

Is XOM A Good Stock To Buy

Even without a stock split, XOM can, of course, still be a solid investment. Oil prices have rallied quite a lot in 2021, and not surprisingly, shares of oil companies that had floundered in 2020 started to rise again. At $63 per share, XOM has experienced gains of a little more than 50% year-to-date, which is attractive for sure.

Thanks to cuts in capital expenditures and exploration programs from XOM and most of its peers, oil prices could potentially have a lot more room to run in the coming years. A global economic recovery, which will fuel demand for oil and gas, coupled with weak demand growth due to conservative exploration programs could lift oil prices to $100 per barrel in the near term, some analysts believe. I personally don't want to bet on that by buying oil futures, but we generally agree that oil prices could have more room to run over the coming years - massive monetary stimulus that has lifted many commodity prices helps as well.

If oil prices do really reach $80, $90, $100, or even more, XOM should do very well, as its portfolio is generally optimized for low break-even costs, which would allow its assets to generate a lot of cash if the oil price environment is conductive. It should, however, be noted that more or less all other oil companies will do well in a high-oil-price environment as well, so this isn't a reason to buy XOM specifically.

Looking at a comparison between Exxon Mobil and its peers, we see that XOM is quite expensive:

XOM, as well as Chevron (CVX), trades at substantial premiums compared to European peers such as BP (BP), Royal Dutch Shell (RDS.A) (RDS.B), and TotalEnergies (TTE). Exxon Mobil's 2021 earnings multiple, its 2022 earnings multiple, and its EV to EBITDA ratio are way higher than those of the European supermajors. Some may prefer the reluctance of XOM and CVX when it comes to ESG approaches, whereas BP, RDS, and TTE seem to be embracing a move towards renewables more ambitiously.

XOM and CVX also do have a better dividend track record compared to their European peers, two of which cut their dividends during the pandemic. But I personally do not think that it makes sense to buy shares of a supermajor at 17x forward earnings when other supermajors trade for less than 10x this year's expected profits. If oil prices continue to climb, the European peers will profit just as much, and they do have multiple expansion potential on top of that, which seems less likely for XOM and CVX.

When one takes a look outside of the supermajor league, then the Canadian oil sands players do seem like attractive oil price plays as well, due to low cash costs, low-decline assets with long lifespans, and strong cash generation.

Overall, I think XOM could do well over the coming years as oil prices could easily climb further from the current level, but I don't think that XOM is the best play in the oil space. Other supermajors are much cheaper while providing similar upside if oil prices continue to climb, and more specialized quality players like some of the Canadian oil sands companies or high-quality US shale plays could be better choices than XOM as well. XOM thus looks solid as an oil price play, but there are better options available.

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