The energy industry grapples with rangebound prices and reduced demand but expects a rebound due to production cuts and geopolitical tensions. Furthermore, the energy industry's future looks promising amid rising global energy demand driven by population growth, industrialization, economic development, and increased use of energy-intensive technologies.
Given this backdrop, it could be wise to add fundamentally strong energy stocks Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM) to one’s watchlist.
Before diving deeper into the fundamentals of these stocks, let's discuss what’s shaping the energy industry’s prospects.
Oil prices stayed rangebound recently amid worries about reduced demand from China and slower worldwide economic expansion. Nevertheless, they're anticipated to increase this year due to a notable drop in U.S. fuel stocks and rising tensions in the Middle East, fostering a positive outlook for the industry.
The outlook for oil futures is optimistic following the U.S. Energy Information Administration (EIA) reducing its forecast for domestic oil growth this year by 120,000 barrels per day (bpd) to 170,000 bpd. This compares to last year's increase of 1.02 million bpd. The EIA previously anticipated a rise of 290,000 bpd in crude production for this year.
OPEC+ has 2.2 million bpd output cuts in place for the first quarter, with Saudi Arabia suggesting an extension if necessary. On the other hand, OPEC, in its January Monthly Oil Market Report, anticipated oil demand to grow by 2.25 million barrels per day this year and 1.8 million bpd next year.
Oil demand is expected to rise this year, with the IMF upgrading global economic growth, especially for the United States and China, reaching a record 103 million barrels per day. Additionally, oil prices may receive a boost as Iran-backed Houthis persist in attacking shipping, making the Red Sea perilous.
Notably, the IEA forecasts global oil demand growth to come in at 2.2 million barrels per day (bpd) this year and 1.8 million bpd in 2025, driven by worldwide economic growth and strong activity in China.
Additionally, As reported by EIA, U.S. crude oil refinery inputs slightly decreased, with refineries operating at 82.4% capacity and decreased fuel production. Crude oil imports rose, while commercial crude inventories increased by 5.5 million barrels. Despite tensions, crude remains within a narrow range, reflecting a balanced outlook amid increased oil derivatives trading.
On top of it, given the reliance on oil, energy firms offering services in drilling, evaluation, production, and maintenance are poised for success. The global oilfield services market is anticipated to thrive and is projected to witness a CAGR of 6.6%, reaching $346.45 billion by 2027.
Considering these conducive trends, let’s analyze the fundamental aspects of the two Energy – Oil & Gas picks, beginning with the second choice.
Stock #2: Chevron Corporation (CVX)
CVX and its subsidiaries engage in integrated energy and chemical operations in the United States and internationally. The company operates in two segments: Upstream and Downstream.
In terms of the trailing-12-month levered FCF margin, CVX’s 9% is 59.1% higher than the 5.65% industry average. Likewise, its 8.10% trailing-12-month Return on Total Assets is 10.7% higher than the industry average of 7.31%. However, the stock’s 12.73% trailing-12-month EBIT margin is 39.7% lower than the industry average of 21.12%.
CVX’s total revenues and other income for the fourth quarter ended December 31, 2023, declined 16.5% year-over-year to $47.18 billion. Likewise, its total adjusted earnings and adjusted EPS fell 17.8% and 15.6% over the prior-year quarter to $6.45 billion and $3.5, respectively.
However, as of December 31, 2023, the stock’s total assets stood at $261.63 billion compared to $257.71 billion as of December 31, 2022.
Street expects CVX’s revenue for the quarter ending March 31, 2024, to increase 2.1% year-over-year to $51.85 billion, while its EPS for the same quarter is expected to decrease 15.6% year-over-year to $3. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 8.2% to close the last trading session at $154.06.
CVX’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #49 out of 82 stocks in the Energy – Oil & Gas industry. It has a C grade for Growth and Stability. Click here to see the other ratings of CVX for Value, Momentum, Sentiment, and Quality.
Stock #1: Exxon Mobil Corporation (XOM)
XOM engages in the exploration and production of crude oil and natural gas in the United States and internationally. It operates through Upstream, Energy Products, Chemical Products, and Specialty Products segments.
On November 14, 2024, XOM initiated production at Payara, Guyana’s third offshore oil development, ahead of schedule, adding 220,000 barrels per day; nearly 6,000 Guyanese support XOM activities, fostering economic development and sustainable energy access in the region.
In terms of the trailing-12-month levered FCF margin, XOM’s 7.05% is 24.7% higher than the 5.65% industry average. Likewise, its 12.48% trailing-12-month Return on Total Capital is 41.5% higher than the industry average of 8.82%. On the other hand, the stock’s 6.48% trailing-12-month Capex/Sales is 53.6% lower than the industry average of 13.96%.
For the fourth quarter (ended December 31, 2023), XOM’s total revenues and other income decreased 11.6% year-over-year to $84.34 billion. Its non-GAAP earnings, excluding identified items, fell 32.3% over the prior-year quarter to $9.52 billion. Also, its non-GAAP earnings, excluding identified items per common share, stood at $2.48, representing a decline of 27.1% year-over-year.
On the other hand, as of December 31, 2023, the stock’s total assets stood at $376.32 billion compared to $369.07 billion as of December 31, 2022.
Analysts expect XOM’s EPS for the quarter ending June 30, 2024, to increase 8% year-over-year to $2.09, while its revenue for the quarter ending March 31, 2024, is expected to decrease 9.1% year-over-year to $78.72 billion. XOM’s stock has gained 4% year-to-date to close the last trading session at $103.97.
XOM’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Growth and Stability. It is ranked #47 in the same industry. To see XOM’s Value, Momentum, Sentiment, and Quality ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
XOM shares rose $0.20 (+0.19%) in premarket trading Friday. Year-to-date, XOM has gained 4.07%, versus a 5.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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