ExxonMobil's Ample Cash Reserves Entice Value-Oriented Traders Towards XOM Shares
Read this, homie! ExxonMobil ($XOM) is fucking killing it with that hefty free cash flow for Q1, compared to Q4 2024. Value-seekers can't get enough of that juicy 3.7% yield and low P/E multiple, you know what I'm saying? And here's the kicker—OTM short-put plays in one-month expiry periods offer high yields.
Catch this—ExxonMobil is at $105.76 right now in midday trading on May 2, 2025. That's after their earnings drop before the market opened on the day. They ain't at their recent highs ($119.04 on April 1 and $121.93 on Nov. 21), but they're still up from a low of $99.93 on April 10.
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Remember my price target chat back on April 13? I argued that XOM stock could be worth $115.76 based on its forward dividend per share (DPS) of $4.04 and average yield of 3.49%. But now, with their excellent free cash flow results, value investors can project a 20% higher value at $127 per share. Buckle up, because we're gonna discuss this new price target.
Strong Free Cash Flow (FCF) and Projections
Exxon reported a whopping $12.95 billion in Q1 cash flow from operations (CFFO) compared to $12.23 billion last quarter. But it was a tad lower than last year's Q1 CFFO of $14.66 billion.
Now, here's where it gets interesting—their Q1 free cash flow (FCF) was $8.84 billion versus $7.997 billion last quarter. That's about 72% of their operating cash flow. Over the last 12 months (TTM), they've produced $55.02 billion in CFFO and $30.7 billion in free cash flow (FCF). That represented 55.8% of their TTM CFFO. On average, their FCF represents 63.5% of CFFO. Handy for our FCF projection below.
And guess what? Their Q1 FCF almost covered their dividend and buybacks, which Exxon calls "Shareholder Distributions." You can check it out on page 12 of their shareholder deck.
Exxon's management also said that by 2030, they'll generate an additional $30 billion in cash flow, or $85 billion. That implies their FCF could rise to $54 billion:
63.5% x $85b CFFO = $54.0 billion.
In other words, their FCF could increase by 76% over the next 5 years (i.e., $54b/$30.7b-1). If this plan materializes, the average annual growth on a compounded basis will be 12% each year.
That means ExxonMobil could be worth a lot more in the long run. Let's take a look at how we can set a price target.
XOM Stock Price Targets
For example, let's suppose that ExxonMobil can generate $35.36 billion in FCF over the next 12 months (NTM):
$8.84b Q1 FCF x 4 = $35.36b NTM FCF.
That represents a 15.2% increase over their TTM FCF of $30.7 billion (take a look above). So, how will the market value this FCF projection?
One method is to add up the average dividend yield and buyback yield over the past 5 years. That would equal a Shareholder Yield metric (equivalent to Exxon's shareholder distribution term). Morningstar does this. Their average Total Yield calculation for XOM stock over the past 5 years is 6.42%.
Here's how to value XOM using this Total Yield metric:
$35.36 billion NTM FCF / 0.0642 = $550.78 billion target market cap.
That's 20.15% higher than today's market cap of $458.4 billion, according to Yahoo! Finance. That implies that XOM could be worth at least 20.15% more, or:
$105.76 price x 1.2015 = $127 per share.
This means that if the market values the projected FCF over the next 12 months at a yield of 6.42% (i.e., equal to a FCF multiple of 15.6x), XOM could be worth 20% more at $127.00 per share.
Analysts Agree XOM is Undervalued
Moreover, analysts concur with this analysis. For example, Yahoo! Finance reports that the average price target of 27 analysts is $124.41 per share. Our website's mean survey is close at $124.30 per share.
These targets imply an upside of 17.6% in XOM stock and are close to the $127 NTM FCF price target above.
In addition, AnaChart, which tracks recent sell-side analysts' price targets and their performance, reports that 29 analysts have an average price target of $129.92 per share.
This shows that analysts are bullish on XOM stock, with high price targets across the board.
One way to play this now, with a lower buy-in price and a payday, is by selling short OTM put options. I chatted about this play in my last article on April 13. Then, I suggested shorting the $100 put option for the May 9 expiry period would offer a 4.23% yield (i.e., $4.23/$100). At the time, XOM was trading for $103.14, and this strike price was 3.0% below the trading price (i.e., out-of-the-money).
Now, that strike price put option is trading for just 35 cents at the midpoint. So the folks who sold these puts have already made a nice profit. They can roll it over to a new strike price at a later expiry period.
For example, the May 30 expiry period shows that the $103.00 strike price put has a midpoint premium of $2.08. This is about 3% below today's price and offers an immediate yield of 2.02% (i.e., $2.08/$103.00).
That demonstrates this is a means to make income while waiting for XOM stock to slide to a lower price. Even if this happens, the investor will have a lower breakeven price:
$103.00 = $2.08 = $100.92.
This is about 4.6% below today's price. Moreover, the dividend yield at this breakeven point is 3.92% (i.e., $3.96/$100.92 = 0.0392). Plus, the expected forward dividend per share (DPS) of $4.04 would provide an NTM yield of 4.0%.
The downside risk with this play is that XOM might slip below the breakeven point. That could result in an unrealized loss for investors. However, the dividend yield and target price upside would be significantly higher, as I've shown.
The long and short of it is that value investors are drawn to XOM stock, thanks to its high yield, strong FCF, analysts' target prices, and short-put possibilities.
In light of ExxonMobil's impressive Q1 free cash flow of $8.84 billion, value investors are projecting a 20% higher value at $127 per share, surpassing the recent analyst average price target of $124.41. For those interested in trading strategies, selling short OTM put options like the May 30 expiry period's $103.00 strike price provides an immediate yield of 2.02%, offering the potential for income while waiting for XOM stock to slide to a lower price. The dividend yield at the breakeven point is 3.92%, and the expected forward dividend per share remains high at $4.04, providing a viable opportunity for income-focused investors.
