ExxonMobil (XOM +1.29%) began a journey to transform the company several years ago, aiming to fully unlock its competitive advantages. The energy giant focused on investing in its advantaged resources, those with the lowest costs and highest margins. It also aimed to leverage its massive scale to reduce structural costs.
Here's a look at whether the oil stock's strategy has created value for investors over the past five years.
Image source: Getty Images.
Drilling down into Exxon's five-year returns
The following table shows Exxon's stock price and total return over the last one-, three-, and five-year periods compared to the S&P 500:
|
One-year |
Three-year |
Five-year | |
|---|---|---|---|
|
ExxonMobil |
5.8% |
15.4% |
179.1% |
|
ExxonMobil (total return with reinvested dividends) |
8.7% |
26.8% |
238.5% |
|
S&P 500 |
13.9% |
75.2% |
87.7% |
Data source: Ycharts.
As that table shows, Exxon has underperformed the S&P 500 over the past year and over the last three years. However, it has absolutely crushed the broader market index over the past five years.
Exxon's returns have been largely uncorrelated to oil prices. The price of Brent oil, the global benchmark, has fallen over the past year (14%) and the last three years (17%). Meanwhile, Brent is only up about 25% over the last five years.
NYSE: XOM
Key Data Points
What has fueled Exxon's performance?
The main factors driving Exxon's returns over the last five years are its strategic focus on three core areas: Advantaged growth, structural cost improvement, and disciplined capital allocation. Exxon has focused on investing money into its assets that have a competitive advantage (places like the Permian Basin, Guyana, and LNG and its best refining and chemicals operations) because they enable it to earn higher returns on capital. The company also leverages its massive global scale to deliver structural cost savings by simplifying business processes, optimizing supply chains, and modernizing technology systems. Exxon has also been very disciplined in allocating capital, balancing growth investments with shareholder returns (dividend increases and share repurchases).
Exxon's strategy has delivered results for investors. For example, the company delivered its highest earnings per share in the third quarter compared to other periods in a similar oil price environment. That's due to its heavy investment in growing production from its advantaged assets and its structural cost savings program, which has delivered $14.3 billion in cumulative savings since 2019. This success has allowed Exxon to return more cash to investors. It has raised its dividend for 43 straight years and is on track to repurchase $20 billion of its stock this year. This combination of earnings growth and rising cash returns has given Exxon the fuel to produce strong total returns for shareholders.
Exxon has done a lot for investors
ExxonMobil has become a much more profitable energy company over the past five years. It has focused on investing in its best assets and leveraging its massive scale to reduce costs. That has enabled Exxon to produce market-crushing total returns. That strong performance could continue over the next five years as the company delivers on its plan to significantly increase its already robust profitability by 2030.
