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Chevron vs. Exxon: Which Is Better Positioned Post-Q2?
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Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) – with their massive market capitalizations of $360 billion and $190 billion, respectively – dominate and define the U.S. energy industry.
Both these companies are engaged in the exploration and production of oil and natural gas, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.
But how do you choose between the two supermajors? Here’s a look at Exxon Mobil and Chevron stocks’ performances in 2016.
Stock Performance
Both Exxon Mobil and Chevron have handily outperformed the S&P 500 in the current year, with Exxon Mobil stock rising 11% to Chevron’s 13%, compared to the S&P 500’s gain of just 7%. Of course, these are numbers at a time when oil prices recovered from a 12-year low of $26.21 a barrel in Feb to $50/barrel mark in early Jun and then slipping again to the low $40s.
Exxon Mobil stock now trades at about 34 times trailing twelve months earnings and 35 times forward earnings for 2016, while Chevron stock is valued at 115 times trailing twelve months earnings and about 73 times forward earnings.
Being much more expensive, Chevron shares are primed for a fall.
Recent Earnings
In an indication of the toll that low commodity prices are taking on the industry, Chevron swung to a loss (including impairments and charges) for the three months ended Jun 30, while Exxon Mobil’s earnings per share were down 59%.
Moreover, the two largest U.S. energy companies by market value are experiencing signs of weakness in the refining business, suggesting that the units – which had saved them when crude prices plunged – could now be a drag. Both Exxon Mobil and Chevron’s ‘downstream’ unit profits halved from the comparable period of 2015.
The deteriorating downstream results could be attributed to a fall in refining margins as the cost of gasoline, heating oil, and other refined products catches up on the beaten down crude price. Following a prolonged period of high differentials, crack spreads have weakened, which lead to deteriorating earnings and cash flows.
As it is, the companies are struggling with faltering sales of their exploration and production businesses amid plunging commodity prices.
Production & Capital Expenditure
Exxon Mobil and Chevron are suffering from marginal or falling returns, reflecting their struggle to replace reserves, as access to new energy resources becomes more difficult. Given their large base, achieving growth in oil and natural gas production is anyways a challenge for these companies over the last many years.
During the Jan-Jun period, the Irving, TX-based oil and natural gas powerhouse Exxon Mobil’s production averaged 4,141 thousand oil-equivalent barrels per day (MBOE/d), essentially unchanged from the first six months of 2015. For another domestic behemoth Chevron, total volume of crude oil and natural gas was down 1.6% from the year-earlier level at 2,597 MBOE/d.
At $10.3 billion, Exxon Mobil’s capital and exploration expenditure for the first half of this year has run 36% lower than in the equivalent period of 2015. Chevron managed to reduce its outlay by 31% to $12 billion.
Shareholder Value
Despite the bloodbath, both Exxon Mobil and Chevron have continued to reward shareholders with large annual dividends of $3.00 and $4.28 per share – currently yielding 3.5% and 4.2%, respectively. In Apr, Exxon Mobil boosted its quarterly payout for the 34th consecutive year. Though Chevron has not raised its dividend this year, it has raised dividend for 28 straight years.
However, in a move designed to conserve cash amid the energy price rout, the companies have stopped pouring money into their once-vigorous stock buyback programs. While Chevron have scrapped its share repurchase scheme, Exxon Mobil has trimmed its buybacks program by around 50%.
Through the year’s first half, Exxon Mobil spent $6.2 billion in dividends, while shelling out $726 million on share buybacks (no purchases in the second quarter). Meanwhile, Chevron paid out $4 billion in dividends.
Cash Flow from Operations
Leaving aside dividends and repurchases, Exxon Mobil’s cash flow from operations and asset sales came in at $10.5 billion in the first six months of the year. Importantly, this was almost the same as its capital spending, a testament to the company’s solid operations and cost discipline.
In contrast, Chevron’s cash from operations was $3.7 billion, more than $8 billion short of its capital spending.
Bottom Line
Exxon Mobil and Chevron are two of the best-run companies among the global oil majors, consistently producing industry-leading financial returns. Both are still sound financially. In fact, their financial flexibility and strong balance sheets are real assets in this highly uncertain period for the economy. Both remain in excellent financial health, with enough in cash on hand and a very manageable debt-to-capitalization ratio. Exxon Mobil, though, with a lower ratio of 14.3% scores over Chevron’s 21.1%.
Nevertheless, neither Exxon Mobil nor Chevron – both carrying Zacks Rank #3 (Hold) – has been spared the effects of the rout in crude prices. But going by their performance thus far in 2016, Exxon Mobil seems to be in relatively better shape.
The most notable victim of the commodity meltdown has been share buybacks – gone for Chevron, Royal Dutch Shell plc and BP plc (BP - Free Report) . Despite trimming significantly, Exxon Mobil till recently managed to spend $500 million a quarter to purchase shares. However, the company elected not to repurchase any common stocks under its repurchase program during the second quarter.
Next is the dividend. Exxon Mobil – a double-A credit-rated company – hiked its dividend in April by 3% to 75 cents. The same can’t be said for Chevron, which kept it the same at $1.07 a share.
The most important advantage for Exxon Mobil over Chevron, though, lies in its ability to generate free cash flow. In fact, the company has done a far better job at preserving cash than Chevron that has been free-cash-flow negative for a few years.
Such has been the repercussions on Chevron that it has scaled back its production growth target over the next two years and is cutting up to 8,000 jobs, or 12% of its workforce.
Finally, Exxon Mobil’s business is roughly twice the size of Chevron’s, which gives it the gargantuan scale to stand up a bit better to industry headwinds.
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Chevron vs. Exxon: Which Is Better Positioned Post-Q2?
Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) – with their massive market capitalizations of $360 billion and $190 billion, respectively – dominate and define the U.S. energy industry.
Both these companies are engaged in the exploration and production of oil and natural gas, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.
But how do you choose between the two supermajors? Here’s a look at Exxon Mobil and Chevron stocks’ performances in 2016.
Stock Performance
Both Exxon Mobil and Chevron have handily outperformed the S&P 500 in the current year, with Exxon Mobil stock rising 11% to Chevron’s 13%, compared to the S&P 500’s gain of just 7%. Of course, these are numbers at a time when oil prices recovered from a 12-year low of $26.21 a barrel in Feb to $50/barrel mark in early Jun and then slipping again to the low $40s.
Exxon Mobil stock now trades at about 34 times trailing twelve months earnings and 35 times forward earnings for 2016, while Chevron stock is valued at 115 times trailing twelve months earnings and about 73 times forward earnings.
Being much more expensive, Chevron shares are primed for a fall.
Recent Earnings
In an indication of the toll that low commodity prices are taking on the industry, Chevron swung to a loss (including impairments and charges) for the three months ended Jun 30, while Exxon Mobil’s earnings per share were down 59%.
Moreover, the two largest U.S. energy companies by market value are experiencing signs of weakness in the refining business, suggesting that the units – which had saved them when crude prices plunged – could now be a drag. Both Exxon Mobil and Chevron’s ‘downstream’ unit profits halved from the comparable period of 2015.
The deteriorating downstream results could be attributed to a fall in refining margins as the cost of gasoline, heating oil, and other refined products catches up on the beaten down crude price. Following a prolonged period of high differentials, crack spreads have weakened, which lead to deteriorating earnings and cash flows.
As it is, the companies are struggling with faltering sales of their exploration and production businesses amid plunging commodity prices.
Production & Capital Expenditure
Exxon Mobil and Chevron are suffering from marginal or falling returns, reflecting their struggle to replace reserves, as access to new energy resources becomes more difficult. Given their large base, achieving growth in oil and natural gas production is anyways a challenge for these companies over the last many years.
During the Jan-Jun period, the Irving, TX-based oil and natural gas powerhouse Exxon Mobil’s production averaged 4,141 thousand oil-equivalent barrels per day (MBOE/d), essentially unchanged from the first six months of 2015. For another domestic behemoth Chevron, total volume of crude oil and natural gas was down 1.6% from the year-earlier level at 2,597 MBOE/d.
At $10.3 billion, Exxon Mobil’s capital and exploration expenditure for the first half of this year has run 36% lower than in the equivalent period of 2015. Chevron managed to reduce its outlay by 31% to $12 billion.
Shareholder Value
Despite the bloodbath, both Exxon Mobil and Chevron have continued to reward shareholders with large annual dividends of $3.00 and $4.28 per share – currently yielding 3.5% and 4.2%, respectively. In Apr, Exxon Mobil boosted its quarterly payout for the 34th consecutive year. Though Chevron has not raised its dividend this year, it has raised dividend for 28 straight years.
However, in a move designed to conserve cash amid the energy price rout, the companies have stopped pouring money into their once-vigorous stock buyback programs. While Chevron have scrapped its share repurchase scheme, Exxon Mobil has trimmed its buybacks program by around 50%.
Through the year’s first half, Exxon Mobil spent $6.2 billion in dividends, while shelling out $726 million on share buybacks (no purchases in the second quarter). Meanwhile, Chevron paid out $4 billion in dividends.
Cash Flow from Operations
Leaving aside dividends and repurchases, Exxon Mobil’s cash flow from operations and asset sales came in at $10.5 billion in the first six months of the year. Importantly, this was almost the same as its capital spending, a testament to the company’s solid operations and cost discipline.
In contrast, Chevron’s cash from operations was $3.7 billion, more than $8 billion short of its capital spending.
Bottom Line
Exxon Mobil and Chevron are two of the best-run companies among the global oil majors, consistently producing industry-leading financial returns. Both are still sound financially. In fact, their financial flexibility and strong balance sheets are real assets in this highly uncertain period for the economy. Both remain in excellent financial health, with enough in cash on hand and a very manageable debt-to-capitalization ratio. Exxon Mobil, though, with a lower ratio of 14.3% scores over Chevron’s 21.1%.
Nevertheless, neither Exxon Mobil nor Chevron – both carrying Zacks Rank #3 (Hold) – has been spared the effects of the rout in crude prices. But going by their performance thus far in 2016, Exxon Mobil seems to be in relatively better shape.
The most notable victim of the commodity meltdown has been share buybacks – gone for Chevron, Royal Dutch Shell plc and BP plc (BP - Free Report) . Despite trimming significantly, Exxon Mobil till recently managed to spend $500 million a quarter to purchase shares. However, the company elected not to repurchase any common stocks under its repurchase program during the second quarter.
Next is the dividend. Exxon Mobil – a double-A credit-rated company – hiked its dividend in April by 3% to 75 cents. The same can’t be said for Chevron, which kept it the same at $1.07 a share.
The most important advantage for Exxon Mobil over Chevron, though, lies in its ability to generate free cash flow. In fact, the company has done a far better job at preserving cash than Chevron that has been free-cash-flow negative for a few years.
Such has been the repercussions on Chevron that it has scaled back its production growth target over the next two years and is cutting up to 8,000 jobs, or 12% of its workforce.
Finally, Exxon Mobil’s business is roughly twice the size of Chevron’s, which gives it the gargantuan scale to stand up a bit better to industry headwinds.
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