ExxonMobil May Be Falling Now, But Is It a Buy Long Term?

Key Points

• ExxonMobil's plan to 2030 would add $20 billion in earnings and $30 billion in cash flow to its annual total.

• The oil giant could produce a cumulative $165 billion in surplus cash over that period.

• It would likely return most of its excess funds to investors through a growing dividend and meaningful share repurchase program.

• 10 stocks we like better than ExxonMobil ›

Shares of ExxonMobil (NYSE: XOM) have fallen about 10% from their 52-week high, mainly because of lower oil prices. This decline comes as the S&P 500 has been hitting new all-time highs.

While ExxonMobil shares are currently down, its robust growth strategy and shareholder return potential position the oil stock as a compelling long-term investment opportunity these days.

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The growth plan to 2030

ExxonMobil has a bold plan for the future. The oil giant's investment strategy has the potential to produce an additional $20 billion in earnings and $30 billion in cash flow by 2030. This would deliver 10% compound annual growth in earnings and 8% compound annual growth in cash flow over the next several years.

The foundation of Exxon's strategy is its plan to invest about $140 billion into major capital projects and its Permian Basin development program over the next several years. Exxon expects these projects to generate returns in excess of 30% over the life of the investment. The company is focusing its capital investments on advantaged assets with the lowest costs and highest margins, such as its developments in Guyana, LNG, and the Permian Basin.

The energy company is also investing in several projects to support the expansion of high-margin energy products, including renewable diesel, thermoset resin, and graphite. Additionally, Exxon is building out lower-carbon energy platforms focused on carbon capture and storage, hydrogen, and lithium. By 2030, Exxon expects new businesses like these to potentially contribute $3 billion to its annual earnings. That number could grow to $13 billion by 2040.

Another aspect of Exxon's strategy is a plan to continue stripping out structural costs. Since 2019, the energy company has achieved $13.5 billion in structural cost savings, surpassing the total of all other international oil companies combined. It aims to deliver a total of $18 billion in structural cost savings by 2030 from its 2019 baseline, further enhancing its earnings capacity.

A growing gusher of cash returns

Exxon's large-scale, integrated energy business enables it to generate significant cash flow. The company estimates that it will generate a cumulative $165 billion in surplus cash by 2030, assuming oil prices average $65 per barrel (roughly the current level). That will give the oil giant even more cash to return to shareholders.

The company is already a leader in returning money to shareholders. It returned an industry-leading $18.4 billion in cash to shareholders through the first half of this year, paying $8.6 billion in dividends and repurchasing $9.8 billion in shares. It's on track to buy back $20 billion in stock this year. Exxon expects to repurchase a similar amount of its stock next year, assuming reasonable oil market conditions. The oil giant could repurchase even more shares in future years, especially if market conditions prove more favorable than anticipated.

Exxon should also have no trouble continuing to increase its dividend. It has raised its payment for 42 straight years. That's the longest streak in the oil patch. Only 4% of companies in the S&P 500 have reached that level of annual dividend increases.

The company's fortress balance sheet affords it the flexibility to return its growing free cash flow gusher to shareholders. Exxon ended the second quarter with $15.7 billion of cash on its balance sheet, backing its ultra-low net leverage ratio of 8%, which leads the oil industry. Exxon's strong balance sheet will provide it with the flexibility to continue investing in growing its operations while returning meaningful cash to shareholders, even if oil prices decline in the future.

A great long-term investment in the oil patch

Shares of ExxonMobil have fallen from their recent peak due to lower oil prices. While the stock is currently down, the energy company's future looks bright. Its 2030 plan has it on track to add significant earnings capacity in the coming years, which should enable it to return even more cash to investors. That combination of earnings growth and increasing cash returns makes Exxon look like a great long-term investment opportunity these days.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.