As investors, we’re always on the hunt for undervalued stocks that promise solid returns. Exxon Mobil Corporation (XOM), one of the world’s largest energy companies, recently caught my attention with its closing price at $114.00. Using two proven valuation methods—Warren Buffett’s Discounted Cash Flow (DCF) approach and the McGrew Valuation Method—I analyzed XOM to determine its intrinsic value and whether it’s a buy at today’s price. Spoiler alert: the numbers suggest XOM is a Screaming Buy. Let’s break it down.
The Valuation Process
To assess XOM’s true worth, I relied on rigorous financial analysis using five years of free cash flow (FCF) data, shares outstanding, and growth projections, sourced from detailed financial statements. The goal was to calculate the intrinsic value per share without a margin of safety, then apply a 25% margin of safety to determine a target buy price. Finally, I compared the results to XOM’s last closing price of $114.00 to assign a valuation status: Screaming Buy, Buy, Hold, or Overvalued.
Step 1: Gathering the Data
- Free Cash Flow (FCF): FCF, a key metric for DCF valuation, was calculated as Operating Cash Flow minus Capital Expenditures. Using XOM’s quarterly cash flow data from 2020–2024, I derived annual FCF:
- 2024: $30.72 billion
- 2023: $33.45 billion
- 2022: $58.39 billion
- 2021: $36.05 billion
- 2020: -$2.61 billion (negative due to pandemic-related disruptions)
- Shares Outstanding: As of Q4 2024, XOM had approximately 4.395 billion shares outstanding.
- Growth Projections: The 5-year FCF CAGR was negative (-5.24%) due to the 2020 outlier. Per valuation guidelines, I assumed a conservative 5% growth rate for stable firms like XOM, reflecting its mature position in the energy sector.
- Last Closing Price: $114.00, assumed accurate for June 17, 2025.
Step 2: Buffett Valuation Method
The Buffett Valuation Method, inspired by Warren Buffett’s DCF approach, projects FCF over 10 years and calculates a terminal value. Here’s how it played out:
- FCF Growth: Using a 5% growth rate (since the 3-year FCF CAGR was negative at -27.48%), I projected FCF from $30.72 billion in 2024 to $50.03 billion in Year 10.
- Terminal Value: Assuming a 2.5% perpetual growth rate and an 8% discount rate (4% Treasury + 4% premium), the terminal value in Year 10 was $932.44 billion.
- Present Value: Discounting all FCFs and the terminal value back to today at 8% yielded a total present value of $666.86 billion. Dividing by 4.395 billion shares gave an intrinsic value per share of $151.73.
- Margin of Safety: Applying a 25% margin of safety, the target buy price is $151.73 × 0.75 = $113.80.
Step 3: McGrew Valuation Method
The McGrew Valuation Method adjusts growth rates for growth stocks, but since XOM’s 5-year FCF CAGR was negative, it defaults to the same parameters as the Buffett method for non-growth stocks (5% growth, 2.5% perpetual growth, 8% discount rate). Consequently, the intrinsic value per share and margin of safety price are identical: $151.73 and $113.80, respectively.
Step 4: Valuation Status
To determine XOM’s investment appeal, I compared the closing price of $114.00 to the intrinsic value:
- Screaming Buy: Closing price ≤ $113.80 (75% of $151.73)
- Buy: $113.80 < Closing price ≤ $141.11 (93% of $151.73)
- Hold: $142.63 (94% of $151.73) ≤ Closing price ≤ $204.84 (135% of $151.73)
- Overvalued: Closing price > $206.35 (136% of $151.73)
At $114.00, XOM is right at the Screaming Buy threshold, qualifying it as a Screaming Buy. This suggests the stock is significantly undervalued, offering a compelling opportunity for investors.
Why XOM Looks Attractive
Exxon Mobil’s valuation is bolstered by its strong cash flow generation, even in volatile energy markets. Despite a negative FCF in 2020 due to COVID-19, XOM rebounded with robust FCF in 2021–2024, averaging over $30 billion annually. Its disciplined capital allocation, including share repurchasing programs, could further enhance per-share value. Additionally, XOM’s diversified operations across upstream, downstream, and chemical segments provide resilience against oil price swings.
However, risks remain. The energy sector is notoriously cyclical, and future FCF could be impacted by geopolitical events, regulatory pressures, or a shift toward renewables. The negative FCF CAGR used in this analysis may also underestimate XOM’s growth potential if oil prices remain favorable.
Based on both the Buffett and McGrew Valuation Methods, Exxon Mobil (XOM) appears significantly undervalued at $114.00, with an intrinsic value of $151.73 per share. The stock’s classification as a Screaming Buy signals a rare opportunity for investors seeking value in a blue-chip energy giant. While risks like sector volatility and energy transition pressures warrant caution, XOM’s strong fundamentals and attractive valuation make it a stock to watch.
Before investing, verify the closing price and consider macroeconomic factors. For now, XOM looks like a gem in the energy sector. Are you adding it to your portfolio?
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