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3 Energy Companies With Rock-Solid Balance Sheet to Watch

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Once again, the price of West Texas Intermediate (WTI) crude oil has surpassed the $80 per barrel threshold and is likely to remain robust this year. According to projections by the U.S. Energy Information Administration (“EIA”), WTI oil is expected to average $83.05 per barrel in 2024, a notable increase from last year's $77.58. Contributing to the strength of commodity prices are voluntary production cuts from the OPEC+ group and ongoing geopolitical tensions.  

While crude prices remain favorable, the likelihood of the commodity reaching $100 per barrel, as seen in 2022, is extremely slim. Additionally, the EIA foresees no growth in GDP this year, with a projected downturn in the following year, consequently dampening energy demand.

3 Stocks to Gain

The current scenario highlights the need to keep a close watch on major energy companies like Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) , and ConocoPhillips (COP - Free Report) , which are known for their strong balance sheet. These energy giants can rely on their financial stability to navigate a volatile and uncertain business environment. At present, all three stocks have a Zacks Rank #3 (Hold) and demonstrate impressive free cash flow conversion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chevron and ExxonMobil boast robust balance sheet, enabling them to withstand challenging business environments. ExxonMobil's total debt-to-capitalization ratio stands at 15.95%, while Chevron's is at 11.9%, both significantly lower than the 24.38% average for composite stocks in the Zacks Oil & Gas Integrated International industry. Over the past three years, these industry leaders have consistently maintained lower debt-to-capitalization ratios, supported by strong oil prices that enhance their financial positions. Furthermore, both companies excel in free cash flow conversion, effectively transforming operating profits into free cash flow.

This financial strength positions them well for future gains. The Zacks Consensus Estimate for ExxonMobil's earnings per share (EPS) for 2024 is $9.57, indicating a 0.5% year-over-year increase. For Chevron, the EPS estimate for this year is $13.57, suggesting a 3.35% improvement from the previous year.

ConocoPhillips has secured a promising production outlook by capitalizing on its extensive drilling inventory and diverse upstream assets. Compared to composite stocks belonging to the industry, the leading upstream energy company has significantly less reliance on debt capital. This robust balance sheet positions ConocoPhillips to better withstand adverse business conditions. Additionally, like Chevron and ExxonMobil, favorable oil prices are boosting COP’s financial performance, allowing it to maintain strong free cash flow conversion.

For ConocoPhillips, the Zacks Consensus Estimate of EPS for this year is pegged at $9.12, indicating a year-over-year improvement of almost 4%.


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