- Management reports both GAAP and non-GAAP cash flow measures (e.g., "Free Cash Flow" and "Free Cash Flow excluding working capital").
- For valuation, this memo treats mid-cycle cash generation (e.g., at a $65 real Brent planning basis) as the anchor, to avoid over-weighting any single oil-price environment.
- 2025 includes growth acquisitions and continued share repurchases; the share count used is the latest reported shares outstanding (issued less treasury) at Sep 30, 2025.
Exxon Mobil Corporation (XOM) — Intrinsic Valuation Memo
Report date: December 14, 2025 | Green Apple Investments
Base intrinsic value
$102/sh
DCF base case
Fair value range (bear/base/bull)
$52 – $155/sh
Cycle-adjusted scenarios
"Grandma-safe" buy zone
≤ $66/sh
≈35% margin of safety
Base WACC
9.0%
Weighted average cost of capital
Terminal growth
2.0%
Mature cyclical enterprise
1) Business snapshot
- Core businesses: Upstream (oil & gas), Product Solutions (refining/fuels + chemicals + specialties), and Low Carbon Solutions (CCS, hydrogen, lower-emission fuels).
- Advantaged resource focus: Permian, Guyana, LNG growth (plus Brazil, Qatar, Mozambique, PNG, U.S.).
- Moat (in plain English): scale + integration + deep project bench + balance sheet resilience; ability to fund multi-year projects through cycles.
- What can go right: execution of Permian & Guyana growth, continued structural cost savings, disciplined capital allocation (dividend + buybacks).
- What can go wrong: commodity price downside, downstream/chemical margin compression, cost inflation, political/regulatory shifts, and project execution risk.
Cyclical note: XOM's cash generation is heavily driven by oil & gas prices and industry margins; valuation must be framed around a mid-cycle commodity deck, not a single year's spot conditions.
2) Recent financial anchor (FY2024 + latest interim)
| Metric (USD) | FY2024 | 9M 2025 (through Sep 30) |
|---|---|---|
| Total revenues & other income ($B) | 349.6 | 249.9 |
| Income before income taxes ($B) | 48.9 | — |
| Net income attributable to ExxonMobil ($B) | 33.7 | 22.3 |
| Cash flow from operations (CFO) ($B) | 55.0 | 39.3 |
| Cash capex (non-GAAP) ($B) | 25.6 | 20.9 |
| Free cash flow (non-GAAP) ($B) | 34.4 | 20.6 |
| Cash & cash equivalents, excl. restricted ($B) | 23.0 | 13.8 |
| Total debt ($B) | 41.7 | 42.0 |
| Debt-to-capital ratio | 13.0% | 13.5% |
| Shares outstanding (B) | 4.353 | 4.217 |
Notes on normalization & one-offs
3) Key drivers & assumptions
- Commodity deck (explicit): Base case aligned to management's planning basis of $65 real Brent with downstream/chemical margins at 10-year averages.
- Advantaged growth: Upstream growth led by Permian and Guyana; mix shift toward advantaged barrels.
- Capital discipline: Capex held roughly flat in real terms; focus on high-return projects.
- Cost structure: Continued structural cost savings, but not assuming full plan execution in the base case.
- Share count: Current shares outstanding used; per-share upside from future buybacks is a potential tailwind but not explicitly modeled.
- Terminal growth: 2.0% reflecting a mature, cyclical enterprise.
Base-case cash flow forecast inputs (what this DCF assumes)
- 2025E starting FCFF: $27.0B (conservative run-rate from 2025 year-to-date free cash flow plus a normalized fourth quarter).
- FCFF growth (2026–2030): 6.0% per year, reflecting advantaged volume growth + efficiency gains.
- Terminal growth: 2.0%.
- Net debt and other claims: net debt ≈ $28.2B and noncontrolling interests ≈ $7.7B deducted from enterprise value.
4) Discount rate (WACC) with math
| Component | Assumption | Notes |
|---|---|---|
| Risk-free rate (10Y U.S.) | 4.14% | Used as the long-term risk-free anchor. |
| Equity risk premium (ERP) | 5.5% | Conservative long-run ERP assumption. |
| Beta | 1.05 | Conservative cyclicality + commodity sensitivity. |
| Cost of equity | 9.92% | Re = Rf + β×ERP |
| Pre-tax cost of debt | 4.50% | Conservative marginal borrowing cost. |
| Tax rate | 28.3% | Approx. FY2024 effective rate. |
| After-tax cost of debt | 3.23% | Rd × (1 − T) |
| Target capital structure | 87% equity / 13% debt | Anchored to reported debt-to-capital. |
| WACC | 9.00% | WACC = We×Re + Wd×Rd×(1−T) |
Why WACC is the "fulcrum" for oil majors
- With a large terminal value component, small changes in WACC can swing intrinsic value materially.
- For cyclicals, a "too low" WACC can silently assume away cycle risk. This memo uses a conservative ~9% base WACC and shows a sensitivity grid.
5) DCF valuation results (base case)
| Year | FCFF ($B) | PV factor | PV FCFF ($B) |
|---|---|---|---|
| 2026E | 28.62 | 0.9174 | 26.26 |
| 2027E | 30.34 | 0.8417 | 25.53 |
| 2028E | 32.16 | 0.7722 | 24.83 |
| 2029E | 34.09 | 0.7084 | 24.15 |
| 2030E | 36.13 | 0.6499 | 23.48 |
| PV of explicit FCFF | 124.25 | ||
| Terminal value (at 2030) | 526.5 | 342.19 | |
| Enterprise value (EV) | 466.44 | ||
| Less: Net debt | 28.22 | ||
| Less: Noncontrolling interests | 7.66 | ||
| Equity value (to XOM holders) | 430.56 | ||
| Intrinsic value per share | $102.10 | ||
How to read this DCF for a cyclical
- The DCF is anchored to a mid-cycle cash generation level and assumes moderate growth from advantaged assets and efficiency.
- Bear/bull outcomes are primarily driven by commodity prices and industry margins, not financial leverage.
6) Sensitivity table (per-share intrinsic value)
| Terminal g | WACC 8% | WACC 9% | WACC 10% |
|---|---|---|---|
| 1% | $106 | $91 | $80 |
| 2% | $121 | $102 | $88 |
| 3% | $142 | $117 | $98 |
| 4% | $173 | $137 | $112 |
Heatmap shading is relative within the table (higher intrinsic value = "greener").
7) "Grandma-safe" conclusion
Decision framing (no stock price used)
- Base intrinsic value: $102/sh
- Fair value range: $52 – $155/sh
- Grandma-safe buy zone (≈35% MOS): ≤ $66/sh
Top 5 things that could make this wrong
- Commodity prices (especially oil) settle below the mid-cycle deck for a prolonged period.
- Downstream/chemical margins stay structurally weak (overcapacity, demand softness, regulations).
- Execution slippage or cost inflation on major projects (Permian, Guyana, LNG, chemicals).
- Capital allocation changes (more M&A / higher capex / lower buybacks) reduce per-share compounding.
- Policy/tax/regulatory shocks (windfall taxes, carbon costs, geopolitical restrictions).
What would justify paying closer to fair value?
- Clear evidence of sustained growth in advantaged volumes and unit profitability.
- Structural cost savings continue without impairing reliability and safety.
- Capex remains disciplined while cash returns remain robust through a full cycle.
Not investment advice. This is a valuation model with assumptions; real-world outcomes can differ materially.
Appendix
Case definitions (bear/base/bull)
- Bear: lower commodity deck (e.g., $55 real Brent) + softer margins; FCFF starts ~$20B and grows ~2% with a higher discount rate.
- Base: $65 real Brent mid-cycle + 10-year average margins; FCFF starts ~$27B (2025E) and grows ~6% through 2030.
- Bull: stronger commodity deck (e.g., $75 real Brent) + better margins; FCFF starts ~$38B with moderate growth and a slightly lower discount rate.
Glossary
- FCFF: Free cash flow to the firm (unlevered). Here approximated using company-reported free cash flow, with minor interest adjustments ignored for simplicity.
- Net debt: Total debt less cash & equivalents (excluding restricted cash).
- Terminal value: Value of cash flows beyond the explicit forecast period, modeled as a perpetuity growing at terminal growth.
Model integrity notes
- This HTML mirrors the memo numbers exactly; computations here are presentation-only (e.g., heatmap classes).
- No external libraries, no external fonts, and no stock price / market cap references.