Exxon Mobile has been a part of the part of the Dow Jones Industrial Average in one form or another since 1928. It's one of the largest oil companies in the world and for 92 years was considered a stalwart. In 1994 Exxon was valued at over $446 billion dollars and was the most valuable company in the United States.
At one point, even Warren Buffett owned the stock.
From 1994 - 2013 Exxon generated an annualized return of 12.65%, a whopping total return of 985% return during this 20-year period. Exxon's performance completely dwarfed the overall stock markets total return of 471%.
What could go wrong?
Well, as most of us have come to learn, nothing is guaranteed in this world, and this definitely holds true on Wall Street.
The challenge for Exxon and one reason why the company is being removed from the Dow Jones Industrial Average today, actually began back in 2014. From Exxon's high in 2014, it's seen it's stock drop by -46%. Several years ago, the energy sector made up 16% of the S&P 500, today it makes up less than 3%. What does this mean? This means that the Energy sector and Exxon is not as an important part of the market as it used to be. The once mighty and most valuable company in the United States, Exxon is now worth just 8.5% of Apple or about 10% of Amazon.
Why did Exxon's mobile stock price drop by -46% over a period the time when the stock market is up 111% and so many technology company's stock prices have been soaring?
As I've written before, a company's stock price is a reflection of it's earnings and it's future growth prospects. The market cares little about the past.
And on this front, Exxon falls flat. Both it's earnings (see below) and it's future growth prospects do not look promising. Since 2014 Exxon's earnings per share are down a staggering -77%. And digging into the company's financial statements, the numbers do not look good, whether looking at their revenue, earnings, or the the company's balance sheet.
While I'm not predicting Exxon's emanant demise or that it will not survive, I think Exxon will do just fine. However, its future doesn't look as bright as its storied past.
What can we take from this?
Well, several ideas can be drawn from Exxon being dropped from the Dow Jones Industrial Average.
Paul R. Rossi, CFA