A Glimpse Into Exxon's Future

Exxon Mobil Forward-Looking Analysis

Q2 Revenue Estimate:  $97.03 Bil

Q2 EPS Estimate:  $1.47.

1-Year Price Target:  $88.35..

Income Statement
Three months ended June 30, 2010
Operating Revenue	$97,027
Income from equity affiliates	$2,620
Other income	$642
Total Revenue	$100,288
Costs & Other Deductions	$88,733
Income before Taxes	$11,555
Income Taxes	$4,530
NI w/ NC Interests	$7,025
NI Attributed to NC Interests	$99
Net Income	$6,926
EPS	$1.47

Wall Street analysts are currently expecting second-quarter revenue and EPS to come in at $99.56 Bil and $1.44, respectively.  I am forecasting revenue to be approximately 2.5% below consensus and EPS to be $0.03 above.  The variation in EPS really boils down to different cost estimates in the quarter, with analysts forecasting higher operating costs quarter-over-quarter, while revenue variation is primarily a result of different revenue models.

For me, determining Exxon’s (“XOM”) price target was a lot of fun (I know I'm lame).  There are two main steps needed to create a price target.  First, a multiple (P/E) must be formulated, and second, the next four quarters of earnings must be estimated.  In the case of XOM, the first step was easy.  All I did was divide the current market price of $68.27 by the sum of the last three quarterly EPS figures (Q2, Q3, Q4) and my estimate for Q1.  The result was $68.27/$4.47, or a P/E of 15.28.  This is slightly less than the P/E reported on Yahoo! Finance because that figure does not factor in the EPS estimate for the first-quarter of 2010.  The “fun” part started with the second step—predicting 2010 quarterly EPS figures for Q2, Q3, and Q4.  In order to estimate Exxon’s earnings in these future quarters, I first had to predict revenue, which involved projecting future oil and gasoline prices.  Given that XOM’s revenue is nearly 100% dependent on energy prices, I needed to have accurate projections.  This is where Monte Carlo Simulation comes in (Sweet name, isn’t it?).  When I write these blog posts, I’m always afraid of my readers getting bogged down with statistics.  Therefore, all I’ll say about Monte Carlo Simulation is that it involved running tests on 5,000 random numbers in order to forecast future oil and gasoline prices.  These average quarterly projections were then used to predict future revenue and can be seen by the following table:

Crude Oil
Mean	$82.75	Q2
Mean	$82.38	Q3
Mean	$83.62	Q4
Gasoline
Mean	285.16	Q2
Mean	294.44	Q3
Mean	300.28	Q4

Once I had the estimate for 2010 earnings ($5.78), all I had to do was multiply the P/E by $5.78, resulting in a 1-year price target of $88.35.  Average analyst price target is currently $81.20, with a range of $70-$92.  I am on the high side, mostly because I am forecasting better cost-management throughout the year. 

Exxon will report earnings before the bell on Thursday, April 29^th and I will be here to post the results, along with my take on their overall performance. 

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XOM Ownership

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Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.