Year to date, Exxon Mobil Corporation (XOM Quick QuoteXOM - Free Report) and Chevron Corporation (CVX Quick QuoteCVX - Free Report) declined 4.2% and 11.7%, respectively, both underperforming the 0.4% fall of the composite stocks belonging to the industry. This downward trend can be attributed to lower oil and natural gas prices in the current year compared with 2022, negatively impacting the profit margins of these integrated energy players and resulting in a decline in their stock prices.

Despite the choppy macroeconomic environment and operational challenges in the current year, a positive turnaround is anticipated for both ExxonMobil and Chevron in 2024. This optimistic outlook is expected to be reflected in the stock prices of these energy majors. Notably, the Zacks Consensus Estimate of earnings per share (EPS) for ExxonMobil in 2024 is pegged at $9.76, suggesting a year-over-year improvement of 6.3%. For Chevron, the Zacks Consensus Estimate of EPS is pegged at $15.28, also signifying a year-over-year improvement of 16.3%.

To delve deeper into the factors that may drive the stocks of ExxonMobil and Chevron in the coming year, a detailed analysis is warranted.  

Dominant Upstream Operations

ExxonMobil and Chevron have solid upstream businesses. In the Permian Basin – the most prolific oil and gas resource in the United States – and offshore Guyana, ExxonMobil has a solid pipeline of profitable projects. Chevron, too, has a strong foothold in the Permian, where a significant portion of the energy major’s acreage has minimum royalty payments.

To further strengthen its presence in the Permian, ExxonMobil has entered into a staggering $59.5 billion all-stock deal to buy Pioneer Natural Resources . This is because Pioneer Natural is one of the foremost oil producers operating in the Permian Basin. With the deal closure, expected in the first half of 2024, Permian production of the integrated energy major will more than double to 1.3 million barrels of oil equivalent per day (MMBoE/D). Furthermore, ExxonMobil projected that this production figure will rise to an impressive 2 MMBoE/D by 2027.

In Stabroek Block, located off the coast of Guyana, ExxonMobil has made many major discoveries that significantly improved its production outlook. The advantaged growth projects of Guyana have lower greenhouse gas intensity than most of the oil and gas-producing resources across the globe.

Like ExxonMobil, Chevron also entered into a deal to diversify and upgrade its existing portfolio. Chevron inked a $53 billion agreement to acquire all the outstanding shares of Hess Corporation (HES Quick QuoteHES - Free Report) . Upon the completion of the agreement, likely to be in the first half of 2024, Chevron is set to acquire a 30% ownership interest of Hess in Guyana's Stabroek Block, which houses the most significant crude discovery of the past decade and stands as one of the most lucrative discoveries globally.

Strong Balance Sheet

Both CVX and XOM have strong balance sheets, so they can withstand adverse business environments. While XOM has a total debt-to-capitalization of 16.6%, the metric for CVX is 11%. Compared to the 24% debt-to-capitalization of composite stocks belonging to the industry, both ExxonMobil and Chevron are better off.

Impressive Free Cashflow Conversion

ExxonMobil and Chevron exhibit commendable free cash flow conversions, reflecting their capacity to transform operating profits into free cash flow within a specified timeframe. Both companies have also been witnessing an improving return on invested capital.

Last Words

In 2024, ExxonMobil and Chevron are anticipated to experience a smoother trajectory, thanks to their commanding upstream operations, robust balance sheets, and notable free cash flow conversions. Both the stocks presently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.