Exxon Mobil (NYSE:XOM) stock looks like it is significantly undervalued at today’s price. On July 8, it closed at $60.14, but XOM stock has a very attractive valuation. For example, it sports a very healthy 5.76% dividend yield and trades for just 16 times this year’s forecast earnings.

My valuation of XOM stock, using its historical yield and price-to-earnings (P/E) metrics, is $75.19 per share. As of July 8, this represents a 25% potential upside for investors in the stock.

The outlook for the company is generally positive as well. Oil and gas prices have been on the rise in the past year, especially as world economic growth has been gaining steam. Moreover, analysts expect earnings per share (EPS) to reach $3.87 this year, according to Yahoo! Finance, up from negative 33 cents EPS last year. And for 2022 they forecast $4.62 per share. At $60.14 on July 8, this puts XOM stock on a forward P/E of just 13 times earnings.

So far this year, Exxon Mobil stock has had a pretty good run. It ended Dec. 31 at $41.22, giving it a 45.9% gain year-to-date. However, since the end of the first quarter (March 31) when it was at $55.83, it’s up just 7.7%.  But now that the company is on a growth path again, XOM stock is likely to return to its average historical valuation levels.

Valuing Exxon Using Historical Dividend Yield

Seeking Alpha reports that the average dividend yield for XOM stock over the last five years has been 5.03%. We can use that to value the stock.

Exxon has been paying the same 87-cents-per-share dividend for the past nine quarters and is likely to continue to do so for while. This gives it an annual dividend of $3.48. Note that this year’s earnings will cover this payout if it reaches the $3.87 EPS target this year.

Now if we divide the $3.48 dividend payment by 5.03%, we derive a target price of $69.19 per share. That means that if the stock rises by 15% (i.e., $69.19/$60.14) its dividend yield will fall to 5.03% (i.e., $3.48/$69.14) from its present 5.76% dividend yield.

And there is every reason to believe this will happen as the company’s earnings grow this year and next. That makes the dividend payout much more secure.

Using Historical P/E to Value Exxon

We can use this same method to value XOM stock, but using its historical P/E multiples. For example, Morningstar.com reports that the average forward P/E ratio for XOM stock has been 21.25 times over the past five years. Since Exxon has a much lower P/E ratio right now, it’s possible the stock could rise to this average P/E multiple.

For example, using the estimate of $3.87 per share EPS estimate this year, the stock is worth $82.23 per share (i.e., $3.82 x 21.25). This represents a potential upside of 36% for the stock.

Now we have two potential value targets. Using historical dividend yield the price target is $69.19, and using historical P/E multiples it’s $82.23. Therefore the average price target is $75.71. This represents a potential upside of 25% for investors in Exxon Mobil.

What to Do With XOM Stock

Other analysts also believe that the stock is too cheap. For example, Tipranks.com indicates that 14 analysts have an average price target of $69.38, or 15% higher. In addition, Yahoo! Finance has an average target of $66.23, or 10% higher. Other surveys include Seeking Alpha, which has a $65.46 price target, and Marketbeat.com with a $59.24 consensus target.

In other words, most analysts have lower price targets for Exxon Mobile than my $75.71 price target. But that doesn’t faze me. For one, it is always possible that the company will raise its dividend, especially with the company’s much higher earnings forecast for 2022.

So it looks like XOM stock has very good upside potential, possibly as much as 25%, to $75.71, using its own historical averages.

On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.