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2 Energy Biggies With Solid Free Cashflow Conversion to Watch
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Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) are two energy giants with integrated business models showcasing robust earnings potential supported by dominant upstream operations and solid balance sheets. What is particularly impressive is the exceptional free cash flow conversion exhibited by both companies.
Let’s delve deeper into the factors driving them.
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 (PXD - Free Report) . 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 - 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, hence 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.
Why Free Cash Flow Conversion is Even More Important
While having strong earnings potential and the capacity to navigate the uncertainties of the energy business is noteworthy, what holds paramount importance is the proficiency in free cash flow conversions – reflecting their capacity to transform operating profits into free cash flow within a specified timeframe. While Chevron has a free cash flow conversion of more than 75%, ExxonMobil’s is 99%. Thus, it is worth keeping an eye on these two energy biggies, both carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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2 Energy Biggies With Solid Free Cashflow Conversion to Watch
Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) are two energy giants with integrated business models showcasing robust earnings potential supported by dominant upstream operations and solid balance sheets. What is particularly impressive is the exceptional free cash flow conversion exhibited by both companies.
Let’s delve deeper into the factors driving them.
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 (PXD - Free Report) . 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 - 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, hence 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.
Why Free Cash Flow Conversion is Even More Important
While having strong earnings potential and the capacity to navigate the uncertainties of the energy business is noteworthy, what holds paramount importance is the proficiency in free cash flow conversions – reflecting their capacity to transform operating profits into free cash flow within a specified timeframe. While Chevron has a free cash flow conversion of more than 75%, ExxonMobil’s is 99%. Thus, it is worth keeping an eye on these two energy biggies, both carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.