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ExxonMobil vs. EOG: The Better Bet as Oil Prices Stay Elevated
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Key Takeaways
WTI above $85 and Middle East tensions keep upstream conditions strong for EOG and XOM.
XOM trades at 9.42x EV/EBITDA and EOG at 6.46x, reflecting a premium for integrated ops.
EOG hasn't cut dividends in 28 years; XOM has raised dividends annually for 43 years, averaging 5.8%.
In the energy sector, the fate of almost all the companies is mostly tied to the prices of crude oil and natural gas. Oil prices are now in a strong phase, supporting exploration and production activities. As a result, investors are increasingly looking to add energy stocks to their portfolios and may be focusing on industry leaders such as Exxon Mobil Corporation (XOM - Free Report) and EOG Resources Inc. (EOG - Free Report) , both of which have delivered solid year-to-date (YTD) gains. Over this period, EOG has risen 23%, while XOM has gained 22.8%. To determine which stock is the better investment, it is important to take a deeper look at its fundamentals and the broader macroeconomic environment.
Image Source: Zacks Investment Research
High Oil Price to Aid Upstream Operations of EOG, XOM
The price of West Texas Intermediate (“WTI”) crude is trading at more than the $85 per barrel mark. The high price is being backed by ongoing tensions in the Middle East. The U.S. Energy Information Administration (“EIA”) in its latest short-term energy outlook projected WTI at $87.41 per barrel this year, higher than $65.40 last year. A highly favorable pricing environment for the commodity is likely to continue to support the exploration and production activities of both EOG and ExxonMobil.
Delving a little deeper into the EOG story, the energy major’s prolific multi-basin portfolio comprises as much as 12 billion barrels of oil equivalent resources. With oil prices likely to remain high, the upstream player, with its diversified set of oil & gas assets, is expected to continue generating handsome cashflows for its shareholders.
XOM also has a strong portfolio of upstream assets. The company has a massive footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing lightweight proppant technology and hence has been capable of boosting its well recoveries by up to as much as 20%.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Record production from both resources has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
Pristine Balance Sheets & Dividend Commitments of XOM, EOG
Both XOM and EOG have low exposure to debt capital and can therefore rely on their balance sheets to sail through business cycles efficiently. EOG has low debt exposure, reflected in debt to capitalization of 21.01%, a little higher than XOM’s 14.04%.
Image Source: Zacks Investment Research
Backed by their strong operations, both EOG and XOM have strong commitments to returning capital to shareholders.
To highlight EOG’s strong commitment to return shareholders’ capital, the company has never suspended or lowered dividend payments. In fact, EOG has been paying dividends for 28 years and plans to reward investors with $2.2 billion of regular dividend payments this year.
Coming to the integrated energy giant’s dividend commitment story, over the past 43 years, ExxonMobil has been rewarding shareholders with annual dividend hikes at an average rate of 5.8%.
Which Stock to Buy? XOM or EOG
Considering the backdrop, it seems that the business environment for both stocks is highly favorable. In terms of valuation, XOM appears relatively expensive, trading at a trailing 12-month EV/EBITDA of 9.42x, a premium to EOG’s 6.46x. Thus, it is clear that investors are willing to pay a premium for ExxonMobil, since it is an integrated energy player with more diversified operations with exposures to refining, chemicals and others. On the contrary, EOG is purely an exploration and production company.
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ExxonMobil vs. EOG: The Better Bet as Oil Prices Stay Elevated
Key Takeaways
In the energy sector, the fate of almost all the companies is mostly tied to the prices of crude oil and natural gas. Oil prices are now in a strong phase, supporting exploration and production activities. As a result, investors are increasingly looking to add energy stocks to their portfolios and may be focusing on industry leaders such as Exxon Mobil Corporation (XOM - Free Report) and EOG Resources Inc. (EOG - Free Report) , both of which have delivered solid year-to-date (YTD) gains. Over this period, EOG has risen 23%, while XOM has gained 22.8%. To determine which stock is the better investment, it is important to take a deeper look at its fundamentals and the broader macroeconomic environment.
High Oil Price to Aid Upstream Operations of EOG, XOM
The price of West Texas Intermediate (“WTI”) crude is trading at more than the $85 per barrel mark. The high price is being backed by ongoing tensions in the Middle East. The U.S. Energy Information Administration (“EIA”) in its latest short-term energy outlook projected WTI at $87.41 per barrel this year, higher than $65.40 last year. A highly favorable pricing environment for the commodity is likely to continue to support the exploration and production activities of both EOG and ExxonMobil.
Delving a little deeper into the EOG story, the energy major’s prolific multi-basin portfolio comprises as much as 12 billion barrels of oil equivalent resources. With oil prices likely to remain high, the upstream player, with its diversified set of oil & gas assets, is expected to continue generating handsome cashflows for its shareholders.
XOM also has a strong portfolio of upstream assets. The company has a massive footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing lightweight proppant technology and hence has been capable of boosting its well recoveries by up to as much as 20%.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Record production from both resources has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
Pristine Balance Sheets & Dividend Commitments of XOM, EOG
Both XOM and EOG have low exposure to debt capital and can therefore rely on their balance sheets to sail through business cycles efficiently. EOG has low debt exposure, reflected in debt to capitalization of 21.01%, a little higher than XOM’s 14.04%.
Backed by their strong operations, both EOG and XOM have strong commitments to returning capital to shareholders.
To highlight EOG’s strong commitment to return shareholders’ capital, the company has never suspended or lowered dividend payments. In fact, EOG has been paying dividends for 28 years and plans to reward investors with $2.2 billion of regular dividend payments this year.
Coming to the integrated energy giant’s dividend commitment story, over the past 43 years, ExxonMobil has been rewarding shareholders with annual dividend hikes at an average rate of 5.8%.
Which Stock to Buy? XOM or EOG
Considering the backdrop, it seems that the business environment for both stocks is highly favorable. In terms of valuation, XOM appears relatively expensive, trading at a trailing 12-month EV/EBITDA of 9.42x, a premium to EOG’s 6.46x. Thus, it is clear that investors are willing to pay a premium for ExxonMobil, since it is an integrated energy player with more diversified operations with exposures to refining, chemicals and others. On the contrary, EOG is purely an exploration and production company.
Thus, investors can bet on ExxonMobil, carrying a Zacks Rank #2 (Buy), right away. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Those who have already invested in EOG to gain from high oil prices can hold on to the stock. It currently carries a Zacks Rank #3 (Hold).