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Great Expectations for Exxon Mobil

Here's what to keep an eye out for on the oil giant's call.

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On Monday,

Exxon Mobil

(XOM) - Get Exxon Mobil Corporation Report

, the 500-pound gorilla of oil companies, will report to the oohs and ahs of Wall Street. And for good reason: the company should improve on a record 2004, and I see it topping analyst expectations for earnings. Here's how I see the numbers shaping it, but first some background.

Although XOM faces some of the same challenges at its brethren in the oil industry, it also has some key differences that help it stand out. Like the other big oil firms, XOM has a large, mature field in North America and Europe. However, XOM's business is more heavily weighted toward downstream refining, petrochemical and lubricants.

XOM has also made significant investments to shift its oil and gas production mix to a focus on liquefied natural gas. XOM has approximately 22 billion barrels of oil equivalent in proved reserve. This has raised the risk profile of the business because these ventures are in typically politically unstable areas such as West Africa, the Middle East and Russia. However, these ventures could have high returns. XOM's other difference is that it has an edge in maximizing its economies of scale, and its culture is one of a relentless pursuit of operating efficiency and best of class returns on capital.

In 2004, XOM recorded $290 billion in revenue for $26 billion in profit. Through nine months ending Sept. 30, 2005, XOM had recorded $272.3 billion in revenue and $25.4 in net income. Current Street estimates are for XOM to record $375 billion in revenue; estimates for earnings are $1.44 and $5.14 per share for the quarter and year, respectively.

XOM had a cash balance of $34 billion at the end of the third quarter, and this probably grew in the fourth quarter. Its fiscal discipline has moved XOM to repurchase shares, and in the third quarter, it bought back $5.5 billion, bringing the total since 2001 to $32 billion worth of stock repurchased. Year over year, I expect XOM shares outstanding to decline just over 2%.

Despite its size, XOM undoubtedly is still suffering to some extent from the hurricanes that plagued the Gulf this year; production levels fell 5% in third quarter. But XOM should have the balance of its operations back on line in early 2006.

I would not be surprised to see XOM beat the $1.44 estimates, and I currently have XOM earning about $1.50 a share. I have an initial estimate of $6.00 in 2006; the Street is currently at $5.49. XOM has said it believes oil prices will be around $48. My current estimate for 2006 is based on higher average oil prices.

Edward J. Stavetski founded Pembroke Capital Management in 2002. He is the chief investment officer and manages money for individuals, small business pensions and small foundations. PCM's investment style is large-cap and small-cap value. Before founding PCM, Stavetski was director of research for Pitcairn Trust Company, a family office and mutual fund company; chief investment officer and managing director of PNC Advisers, the investment management and trust division of PNC Bank and senior portfolio manager for Rorer Asset Management, an investment advisory firm managing individual and institutional portfolios. He graduated with a bachelor's degree from West Virginia University. He is a member of the Association for Investment Management & Research (AIMR) and the Financial Analysts of Philadelphia. He is also a board member of Financial Analysts of Philadelphia and serves as vice-chairman of AIMR's professional development committee.