Exxon Mobil Corporation (XOM) in Irving, Tex., engages in the exploration and production of crude oil and natural gas in the United States and globally. The company operates through the broad segments of Upstream; Downstream; and Chemical. It also manufactures, trades, transports, and sells crude oil, natural gas, and petrochemicals. In comparison, Chevron Corporation (CVX) in San Ramon, Calif., operates integrated energy, chemicals, and petroleum operations worldwide. The company operates through two broad segments: Upstream, involved in the exploration, development, and production of crude oil and natural gas; and Downstream, engaged in the refining and crude oil and petroleum products.
Oil prices are again on the rise on Tuesday, recouping some of the losses they incurred in the previous session. Brent crude rose 1.3% to $113.89 per barrel, while the United States West Texas Intermediate (WTI) crude surged 0.9% to $106.91 per barrel. The oil benchmarks are rising due to continued disruption to Kazakhstan’s supplies, and other producers are exhibiting no rush to increase supply.
Despite the drive toward more renewable energy sources, the U.S. Energy Information Administration (EIA) has predicted that oil and gas will remain the most-consumed sources of energy in the country through 2050. Furthermore, the Oslo-based energy research firm Rystad Energy has forecasted that oil prices could reach $240 per barrel this summer if Western countries impose increasing sanctions on Russia’s oil export. Both XOM and CVX are big names in the oil and gas market and might stand to benefit from industrial tailwinds. Over the past year, XOM’s stock has gained 43.5% in price, while CVX gained 54.8%. XOM has gained 34.2% over the past three months, while CVX has gained 40.3%. And over the past five days, XOM has gained 1.2%, while CVX has gained 1.3%.
But which stock is a better buy now? Let’s find out.
Latest Developments
On March 2, XOM announced plan to construct a hydrogen production plant at its integrated refining and petrochemical site at Baytown, Tex. This is expected to help the company reduce emissions from its operations. On February 25, XOM announced that it had made a final investment decision on expanding carbon capture and storage at its LaBarge, Wyoming, facility. The expansion is expected to reduce emissions and help the company continue its large-scale capability.
On March 21, CVX subsidiary Chevron U.S.A. Inc.’s Chevron Products Company division introduced its new full synthetic, high-performance engine oil called Delo® 400 XSP SAE 15W-40 with ISOSYN® Advanced Technology™. The new product, which is designed specifically for heavy-duty diesel engines that operate on and off-highway and is expected to maximize engine protection and minimize oil consumption, should add to the company’s revenue stream.
Recent Financial Results
For its fiscal fourth quarter of 2021, CVX’s total revenues and other income increased 82.6% year-over-year to $84.97 billion. Its net income attributable to XOM rose 144.2% from the prior-year quarter to $8.87 billion, while its earnings per common share improved 144.3% from the same period in the prior year to $2.08.
For its fiscal fourth quarter, ended Dec. 31, 2021, CVX’s total revenues and other income increased 90.6% year-over-year to $48.13 billion. Its net income attributable to CVX and its value per share of common stock improved 860.2% and 897%, respectively, from the prior-year period to $5.06 billion and $2.63, respectively.
Past and Expected Financial Performance
XOM’s EBITDA, net income, and EPS have grown at a CAGR of 3.8%, 3.4%, and 3.4% over the past three years. The consensus EPS estimates for the quarter ending March 2022, and for its fiscal year 2022 are expected to increase 216.9% and 53%, respectively, from the prior-year periods. Its revenue for the same period is expected to increase by 69.9% and 32.5%, respectively. However, its EPS is expected to decrease 13.6% year-over-year for its fiscal 2023, while its revenue is expected to decline 6.6%. XOM’s EPS is expected to grow 12.5% per annum over the next five years.
CVX’s EBITDA has declined at a 0.2% CAGR, while its net income and EPS have grown at a CAGR of 1.8% and 1.7%, respectively, over the past three years. The Street’s EPS estimates for the quarter ending March 31, 2022, and for fiscal 2022 are expected to increase 246.7% and 55.6%, respectively, from the prior-year periods. Its revenue for the same period is expected to increase by 48.9% and 26.5%, respectively. However, its EPS is expected to decrease 11.7% year-over-year for its fiscal year 2023, while its revenue is expected to decline 5.5%. CVX’s EPS is expected to grow 8.5% per annum over the next five years.
Profitability
XOM’s $278.98 billion trailing 12-month revenue is 1.8 times what CVX generates. And CVX’s 10.19x EBIT margin compared with XOM’s 9.60%.
XOM is more profitable in terms of its ROE, ROA, and ROTC of 13.89%, 4.98%, and 7.19%, which compares with CVX’s 11.51%, 4.14%, and 5.57%.
Valuation
CVX’s 12.22x forward P/E is 17.4% higher than XOM’s 10.41x. And its 6.57 forward EV/EBITDA multiple is 13.1% higher than XOM’s 5.81.
Therefore, XOM is relatively affordable here.
POWR Ratings
XOM has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, CVX has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
XOM has a Sentiment grade of C, which is justified by Wall Street analysts’ 12-month median price target of $87.28, which indicates a 5.4% potential upside. On the other hand, CVX has a D grade for Sentiment, in sync with its 12-month median price target of $161.43, indicating a 3% potential downside.
Both XOM and CVX have a Quality grade of B, which is justified by their trailing 12-month return on total assets of 6.80% and 6.52%, respectively, which are 131.00% and 121.65% higher than the industry average of 2.94%.
In the 89-stock Energy – Oil & Gas industry, XOM is ranked #34, while CVX is ranked #68. The industry is rated B.
Click here to see the additional POWR Ratings for XOM. To see the additional POWR Ratings for CVX, click here.
Winner
Oil prices are expected to remain elevated, with the Russia-Ukraine war threatening to create a global oil supply shock. Both XOM and CVX as notable names in the oil and gas industry might benefit from the rising prices. However, because analysts see a potential upside in XOM, we think it might be the better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy – Oil & Gas industry here.
XOM shares were trading at $81.85 per share on Tuesday afternoon, down $0.96 (-1.16%). Year-to-date, XOM has gained 35.25%, versus a -2.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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