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ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) , with a massive market capitalization of $385 billion and $307 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.
ExxonMobil and Chevron each carries a Zacks Rank #2 (Buy), meaning that you can have both companies in the portfolio. But this may be a good time to consider which of these to own more of.
Driven by the surge in commodity prices, both XOM and CVX shares have done well during the past year. In the past 12 months, ExxonMobil has been up 59.3%, whereas Chevron has risen by 54.9%. They have trounced the S&P 500 during this period, which has decreased by 14.6%. Even year to date, XOM’s stock is up a greater 48.6% compared to a 32.1% gain at Chevron. Therefore, based on the stock price, XOM has been a clear winner.
Image Source: Zacks Investment Research
Earnings History
ExxonMobil has a more robust history of earnings beats than Chevron. On Jul 29, XOM reported its second-quarter 2022 results and went past the Zacks Consensus for the seventh time in eight quarters. Earnings were $4.14 versus the Zacks Consensus Estimate of $3.80 for a 9% beat. While CVX’s EPS of $5.82 also beat the consensus mark by 15.9%, the company has built up an unimpressive earnings history, surpassing estimates in just four of the last eight quarters.
Production
Over the past few years, ExxonMobil and Chevron have struggled to replace reserves as access to new energy resources becomes more difficult. Given their large base, achieving growth in oil and natural gas production has anyway been a challenge for these companies over the last many years.
During the first six months of 2022, the Irving, TX-based oil and natural gas powerhouse ExxonMobil’s production averaged 3,704 thousand oil-equivalent barrels per day (MBOE/d), a nominal 0.5% higher than the year-ago output of 3,684 MBOE/d. For another domestic behemoth Chevron, the total volume of crude oil and natural gas was down 4.7% from the year-earlier level at 2,978 MBOE/d.
While ExxonMobil’s first-half volume figure is comparatively better, Chevron is a clear winner in terms of production growth outlook. As a matter of fact, CVX seems to be one of the best-placed global integrated oil companies to achieve sustainable production ramp-up. The only energy component of the Dow Jones Industrial Average aims to grow production by around 13% from the 2021 levels to more than 3.5 million barrels a day by 2026 — mostly from the Permian Basin and the Tengiz project in Kazakhstan.
Valuation
On the basis of the trailing 12-month EV/EBITDA ratio — the multiple that most analysts use for the oil and gas firms — ExxonMobil is currently trading at 4.95X, lower than Chevron’s 5.64X but higher than the industry’s 3.27X. While both stocks are overvalued compared to the industry, being a touch more expensive, CVX shares are more prone to fall.
Image Source: Zacks Investment Research
Dividend
Both the diversified oil companies have a long and consistent dividend-paying record. They are the only two energy stocks on the list of Dividend Aristocrats — a group of companies on the S&P 500 Index that have raised their payouts for more than 25 years in a row. Even at the height of the pandemic-led crisis, they trimmed costs elsewhere to preserve their payout.
In January, CVX raised its dividend by 6% to $1.42 per share (or $5.68 per share annualized). Investors get a dividend yield of approximately 3.66% from the company. Meanwhile, ExxonMobil boosted its payout to 88 cents per share (or $3.52 per share per year) in October last year. The stock is currently yielding around 3.87%.
Overall, the dividend yield for ExxonMobil is higher than Chevron though it is still lower than the industry's return of 3.98%. But on absolute terms, Chevron is better off compared to ExxonMobil.
Image Source: Zacks Investment Research
Net Debt
A sustainable dividend is more than just yields. A company must maintain a strong balance sheet to keep on paying dividends when the going gets tough. In that respect, net debt (or total debt less cash) is of paramount importance. Of the two companies, ExxonMobil has a higher net debt of $20.6 billion, followed by Chevron’s $14.2 billion. In other words, CVX has a healthier balance sheet than XOM.
Image Source: Zacks Investment Research
Capital Expenditure & Cash Flows
At $9.5 billion, ExxonMobil’s capital and exploration expenditure for the first two quarters ran more than 37.2% higher than in 2020. Meanwhile, Chevron’s outlay increased by 45.2% to $5.1 billion.
Looking at the companies’ cash flow from operations, an important gauge of financial health in the oil and gas industry, Chevron has delivered an excellent performance so far this year. The company recorded $21.8 billion in cash flow from operations, surging from $11.2 billion a year ago. ExxonMobil didn’t perform too badly either, raking in $34.8 billion of cash flows year to date compared to $18.9 billion in the corresponding period of 2021.
Importantly, both ExxonMobil and Chevron were comfortably able to cover the spending on shareholder distributions and capital expenditures with cash flow from operations, which resulted in monumental free cash flows of $16.7 billion and $27.7 billion, respectively.
But going forward, we expect Chevron's cash flow to improve significantly, with huge capital spending requirements mostly behind it, following the completion of Australian LNG projects Gorgon and Wheatstone. CVX will hold annual capital spending through 2026 in the range of $15 billion to $17 billion, some 50% lower than peak levels. XOM, on the other hand, is expected to keep investment in the range of $20-$25 billion per annum through 2025.
With Chevron keeping a tighter leash on capital spending, the company wins this round to its larger rival.
Financial Health
ExxonMobil and Chevron are two of the best-run companies among the global oil majors, consistently producing industry-leading financial returns. Both are still financially sound. In fact, their financial flexibility and strong balance sheets are real assets. Both remain in excellent financial health, with enough cash on hand and a very manageable debt-to-capitalization. CVX, though, with a lower ratio of 14.5 scores over ExxonMobil’s 20.3.
Image Source: Zacks Investment Research
Accretive Acquisitions
Taking advantage of the commodity price collapse, Chevron acquired Noble Energy for a bargain price of $5 billion in 2020. The addition of Noble Energy's assets has expanded Chevron’s footprint in the DJ Basin and the lucrative Permian Basin, along with the addition of cash-generating offshore assets in Israel.
Earlier this year, CVX acquired biodiesel producer, Renewable Energy Group, for $3.15 billion in an all-cash deal. Chevron’s existing renewable fuel partnership with Bunge, together with Renewable Energy Group’s biodiesel production facilities, will transform the energy behemoth into one of the largest North American renewable fuel producers.
In contrast, ExxonMobil is leaning less heavily on the inorganic channels.
Conclusion
Our comparative analysis shows that ExxonMobil holds an edge over Chevron when considering stock performance, earnings history, current production growth, valuation, dividend yield, and cash flows (partly due to its larger size). Meanwhile, on all other counts, Chevron is clearly a better stock.
In other words, both companies appear pretty solid investments at current prices, depending on one’s preference. The longer-term outlook is compelling for both. It’s true that ExxonMobil’s business, being larger than Chevron’s, gives it the gargantuan scale to stand up a bit better to industry headwinds. However, the latter’s attractive production growth profile, superior financial metrics and opportunistic investments cannot be ignored.
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ExxonMobil Versus Chevron: A Case for Owning Both
ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) , with a massive market capitalization of $385 billion and $307 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.
ExxonMobil and Chevron each carries a Zacks Rank #2 (Buy), meaning that you can have both companies in the portfolio. But this may be a good time to consider which of these to own more of.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Stock Performance
Driven by the surge in commodity prices, both XOM and CVX shares have done well during the past year. In the past 12 months, ExxonMobil has been up 59.3%, whereas Chevron has risen by 54.9%. They have trounced the S&P 500 during this period, which has decreased by 14.6%. Even year to date, XOM’s stock is up a greater 48.6% compared to a 32.1% gain at Chevron. Therefore, based on the stock price, XOM has been a clear winner.
Image Source: Zacks Investment Research
Earnings History
ExxonMobil has a more robust history of earnings beats than Chevron. On Jul 29, XOM reported its second-quarter 2022 results and went past the Zacks Consensus for the seventh time in eight quarters. Earnings were $4.14 versus the Zacks Consensus Estimate of $3.80 for a 9% beat. While CVX’s EPS of $5.82 also beat the consensus mark by 15.9%, the company has built up an unimpressive earnings history, surpassing estimates in just four of the last eight quarters.
Production
Over the past few years, ExxonMobil and Chevron have struggled to replace reserves as access to new energy resources becomes more difficult. Given their large base, achieving growth in oil and natural gas production has anyway been a challenge for these companies over the last many years.
During the first six months of 2022, the Irving, TX-based oil and natural gas powerhouse ExxonMobil’s production averaged 3,704 thousand oil-equivalent barrels per day (MBOE/d), a nominal 0.5% higher than the year-ago output of 3,684 MBOE/d. For another domestic behemoth Chevron, the total volume of crude oil and natural gas was down 4.7% from the year-earlier level at 2,978 MBOE/d.
While ExxonMobil’s first-half volume figure is comparatively better, Chevron is a clear winner in terms of production growth outlook. As a matter of fact, CVX seems to be one of the best-placed global integrated oil companies to achieve sustainable production ramp-up. The only energy component of the Dow Jones Industrial Average aims to grow production by around 13% from the 2021 levels to more than 3.5 million barrels a day by 2026 — mostly from the Permian Basin and the Tengiz project in Kazakhstan.
Valuation
On the basis of the trailing 12-month EV/EBITDA ratio — the multiple that most analysts use for the oil and gas firms — ExxonMobil is currently trading at 4.95X, lower than Chevron’s 5.64X but higher than the industry’s 3.27X. While both stocks are overvalued compared to the industry, being a touch more expensive, CVX shares are more prone to fall.
Image Source: Zacks Investment Research
Dividend
Both the diversified oil companies have a long and consistent dividend-paying record. They are the only two energy stocks on the list of Dividend Aristocrats — a group of companies on the S&P 500 Index that have raised their payouts for more than 25 years in a row. Even at the height of the pandemic-led crisis, they trimmed costs elsewhere to preserve their payout.
In January, CVX raised its dividend by 6% to $1.42 per share (or $5.68 per share annualized). Investors get a dividend yield of approximately 3.66% from the company. Meanwhile, ExxonMobil boosted its payout to 88 cents per share (or $3.52 per share per year) in October last year. The stock is currently yielding around 3.87%.
Overall, the dividend yield for ExxonMobil is higher than Chevron though it is still lower than the industry's return of 3.98%. But on absolute terms, Chevron is better off compared to ExxonMobil.
Image Source: Zacks Investment Research
Net Debt
A sustainable dividend is more than just yields. A company must maintain a strong balance sheet to keep on paying dividends when the going gets tough. In that respect, net debt (or total debt less cash) is of paramount importance. Of the two companies, ExxonMobil has a higher net debt of $20.6 billion, followed by Chevron’s $14.2 billion. In other words, CVX has a healthier balance sheet than XOM.
Image Source: Zacks Investment Research
Capital Expenditure & Cash Flows
At $9.5 billion, ExxonMobil’s capital and exploration expenditure for the first two quarters ran more than 37.2% higher than in 2020. Meanwhile, Chevron’s outlay increased by 45.2% to $5.1 billion.
Looking at the companies’ cash flow from operations, an important gauge of financial health in the oil and gas industry, Chevron has delivered an excellent performance so far this year. The company recorded $21.8 billion in cash flow from operations, surging from $11.2 billion a year ago. ExxonMobil didn’t perform too badly either, raking in $34.8 billion of cash flows year to date compared to $18.9 billion in the corresponding period of 2021.
Importantly, both ExxonMobil and Chevron were comfortably able to cover the spending on shareholder distributions and capital expenditures with cash flow from operations, which resulted in monumental free cash flows of $16.7 billion and $27.7 billion, respectively.
But going forward, we expect Chevron's cash flow to improve significantly, with huge capital spending requirements mostly behind it, following the completion of Australian LNG projects Gorgon and Wheatstone. CVX will hold annual capital spending through 2026 in the range of $15 billion to $17 billion, some 50% lower than peak levels. XOM, on the other hand, is expected to keep investment in the range of $20-$25 billion per annum through 2025.
With Chevron keeping a tighter leash on capital spending, the company wins this round to its larger rival.
Financial Health
ExxonMobil and Chevron are two of the best-run companies among the global oil majors, consistently producing industry-leading financial returns. Both are still financially sound. In fact, their financial flexibility and strong balance sheets are real assets. Both remain in excellent financial health, with enough cash on hand and a very manageable debt-to-capitalization. CVX, though, with a lower ratio of 14.5 scores over ExxonMobil’s 20.3.
Image Source: Zacks Investment Research
Accretive Acquisitions
Taking advantage of the commodity price collapse, Chevron acquired Noble Energy for a bargain price of $5 billion in 2020. The addition of Noble Energy's assets has expanded Chevron’s footprint in the DJ Basin and the lucrative Permian Basin, along with the addition of cash-generating offshore assets in Israel.
Earlier this year, CVX acquired biodiesel producer, Renewable Energy Group, for $3.15 billion in an all-cash deal. Chevron’s existing renewable fuel partnership with Bunge, together with Renewable Energy Group’s biodiesel production facilities, will transform the energy behemoth into one of the largest North American renewable fuel producers.
In contrast, ExxonMobil is leaning less heavily on the inorganic channels.
Conclusion
Our comparative analysis shows that ExxonMobil holds an edge over Chevron when considering stock performance, earnings history, current production growth, valuation, dividend yield, and cash flows (partly due to its larger size). Meanwhile, on all other counts, Chevron is clearly a better stock.
In other words, both companies appear pretty solid investments at current prices, depending on one’s preference. The longer-term outlook is compelling for both. It’s true that ExxonMobil’s business, being larger than Chevron’s, gives it the gargantuan scale to stand up a bit better to industry headwinds. However, the latter’s attractive production growth profile, superior financial metrics and opportunistic investments cannot be ignored.