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Which Is the Best Oil Supermajor Post-Q3 Earnings?

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Following the supply glut and lackluster global demand, oil prices remained low for more than three years. From 2014, crude oil went from over $100 a barrel to under $30. However, the market has recovered from these historic lows with prices finally rebounding to more than $50 a barrel.

Recently, crude prices reached a more than two-year high of above $57. The commodity-pricing environment has been improving, courtesy of tightening supplies, rising demand and OPEC-deal extension talks. (Read More)

Steady increase in oil prices and strong earnings performance has shifted focus to the energy sector. In this quarter, of the 15 oil companies that make up the broader Zacks industry, 10 have already reported earnings, with seven beating their Zacks Consensus Estimate.

The three oil behemoths, Exxon Mobil Corp. (XOM - Free Report) , BP plc (BP - Free Report) and PetroChina Company Ltd. (PTR - Free Report) might be different from one another fundamentally, but all of them reported encouraging third-quarter earnings results. In this respect, we have performed a comparative analysis of the key players in the Oil International Integrated industry to pick the best investment option based on their earnings scorecard.

While, both Exxon Mobil and PetroChina have a Zacks Rank #2 (Buy), BP has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Third-Quarter Earnings

Exxon Mobil posted strong third-quarter 2017 results, courtesy of increased price realizations from liquids and gas and improved margins at the refinery business. Exxon Mobil reported earnings of 93 cents per share, surpassing the Zacks Consensus Estimate of 89 cents. Also, the bottom line improved from the year-ago quarter level of 63 cents.

Total revenues in the quarter increased to $66,165 million from $58,677 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $63,508 million. (Read More)

BP reported strong third-quarter 2017 earnings, courtesy of higher realized prices of liquid and natural gas. Contribution from key upstream projects also supported the upside.

The British energy giant reported third-quarter adjusted earnings of 57 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line surpassed the Zacks Consensus Estimate of 50 cents and the year-ago earnings of 30 cents. Total revenues were $60,808 million, up from $48,043 million in the year-ago quarter. (Read More)

PetroChina announced third-quarter 2017 earnings of RMB 4,690 million or RMB 0.03 per diluted share compared with RMB 1,200 million or RMB 0.01 per diluted share a year earlier.

The positive comparisons of this Chinese oil giant can be primarily attributable to higher oil prices and strict cost control, which helped its biggest unit — exploration and production — to swing to profitability. Moreover, China’s dominant oil and gas producer’s total revenues for the three months under consideration rose 17.1% from the year-ago period to RMB 481,795 million.

Despite a year-over-year increase in earnings per diluted share, PetroChina’s earnings per ADR of 45 cents missed the Zacks Consensus Estimate by a cent on deteriorating results at its refining unit. (Read More)

Price Performance

In a year, Exxon Mobil and PetroChina have underperformed the industry, which has an average gain of 10.3%. Both Exxon Mobil and PetroChina have registered a decline of 6.9% and 0.1%, respectively. In contrast, BP rose 16.1%, handily beating both ExxonMobil and PetroChina, and the industry. On the price front, BP emerges a clear winner.

Earnings History and Estimate Revisions

All the three oil and energy giants delivered average positive earnings surprises. Exxon Mobil, BP and PetroChina beat by 8.8%, 26.8% and 27.4%, respectively.

In the last 30 days, Exxon Mobil’s current-quarter estimates increased by a cent to 99 cents per share, while that for the current year advanced from $3.56 to $3.62. NVIDIA’s current-quarter estimates remained unchanged at 94 cents per share, while current-year estimates increased from $2.39 to $2.48 per share.

BP’s current-year estimates climbed from $1.58 to $1.80 per share. It witnessed better current-year estimate revisions than the other two. BP also holds an edge over the other two with respect to the quarter-over-quarter earnings growth.

Valuation

EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) is often used to value oil and gas stocks. This is because of the significant debt levels and high depreciation and amortization expenses of these companies.

Coming to the three stocks under consideration, Exxon Mobil and BP are overvalued than the industry, which has an EV/EBITDA ratio of 6.46. However, Exxon Mobil is also pricier than the other two stocks, since it has an EV/EBITDA ratio of 8.88, higher than BP and PetroChina’s readings of 6.89 and 4.39, respectively. Clearly, PetroChina is undervalued than Exxon Mobil and BP, as well as the industry.

Conclusion

In our comparative analysis, Exxon Mobil and BP are more expensive than PetroChina. However, when considering theprice performance, BP holds an edge over Exxon Mobil and PetroChina. Moreover, BP has witnessed quarter-over-quarter earnings growth of more than 100%, which is considerably better than both Exxon Mobil and PetroChina.

Additionally, when we take a more comprehensive look at the companies’ previous earnings performance and estimate revisions, BP is clearly the best among the three oil giants. Moreover, BP became the first European oil major to resume share repurchase since the 2014 oil slump. Further, BP holds better Zacks Rank than the other two. This is why we can conclude that BP is a better investment proposition than Exxon Mobil and PetroChina.

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