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ExxonMobil vs. Phillips 66: Which Energy Stock Should You Pick?
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Key Takeaways
ExxonMobil's Permian growth and low shut-in prices support cash flow with WTI near $80 per barrel.
Phillips 66 faces higher refining costs, but midstream and chemicals help cushion volatility.
ExxonMobil trades below Phillips 66 on EV/EBITDA, yet investors are urged not to rush into either stock.
Exxon Mobil Corporation (XOM - Free Report) and Phillips 66 (PSX - Free Report) are two energy giants that investors interested in the oil-energy sector may want to consider, even as another escalation in U.S.-Iran tensions has heightened volatility across the energy markets.
To have an idea of how both stocks have behaved in the past year, ExxonMobil has gained 29.3%, underperforming PSX’s 62.9% surge. Since the pricing chart does not represent the final picture before concluding on investment decisions, let’s delve into both stocks’ business fundamentals.
One-Year Price Chart
Image Source: Zacks Investment Research
Oil Hovers Around $80: Can XOM’s Upstream Business Thrive?
ExxonMobil 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 is capable of boosting its well recoveries by up to as much as 20%.
Let’s delve a little deeper into whether operating in the Permian is still profitable for the large integrated energy giant. According to the data from the Federal Reserve Bank of Dallas, the shut-in price for existing wells in the Midland, a sub-basin of the Permian, is $42 per barrel. For Delaware, another sub-basin, the Federal Reserve Bank of Dallas estimated the price at $34 per barrel.
Image Source: Federal Reserve Bank of Dallas
With West Texas Intermediate (“WTI”) crude oil hovering around the $80 per-barrel mark, significantly higher than the shut-in prices, it makes sense for XOM to continue production in the wells and generate cash flows. On the first-quarter earnings call, XOM mentioned that it is staying aligned with its plan of growing its production in the most prolific basin to 1.8 million oil-equivalent barrels this year.
Is High Oil a Dampener for Phillips 66?
The high price of oil is not in favor of PSX’s refining business. This is because refiners process crude oil to produce final products like gasoline, jet fuel and others. Hence, with the increase in crude price, their input costs are also surging, in turn affecting the bottom line.
However, investors should also consider the resilient business model of PSX. Although a leading refiner, PSX, unlike most of its refining peers, has diversified the business across midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating significant capital for midstream.
Midstream business, by its very definition, is stable since the company generates stable cash flows as the assets are being utilized for the long term and is less vulnerable to commodity price volatility. Hence, having a diversified business model, PSX is insulated from commodity price volatility to a great extent.
XOM or PSX: Which is a Better Stock?
Considering the valuation snapshot, it has become evident that ExxonMobil is currently trading at a discount compared with PSX. This is reflected in the fact that XOM trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 9.61X, below PSX’s 14.01X.
Image Source: Zacks Investment Research
This means investors are willing to pay a premium for PSX relative to XOM. However, investors shouldn’t rush to bet on either of the stocks now since commodity prices and their trend are now highly difficult to predict, considering the ongoing conflicts between the United States and Iran.
View the Zacks #1 Rank List
Image: Bigstock
ExxonMobil vs. Phillips 66: Which Energy Stock Should You Pick?
Key Takeaways
Exxon Mobil Corporation (XOM - Free Report) and Phillips 66 (PSX - Free Report) are two energy giants that investors interested in the oil-energy sector may want to consider, even as another escalation in U.S.-Iran tensions has heightened volatility across the energy markets.
To have an idea of how both stocks have behaved in the past year, ExxonMobil has gained 29.3%, underperforming PSX’s 62.9% surge. Since the pricing chart does not represent the final picture before concluding on investment decisions, let’s delve into both stocks’ business fundamentals.
One-Year Price Chart
Oil Hovers Around $80: Can XOM’s Upstream Business Thrive?
ExxonMobil 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 is capable of boosting its well recoveries by up to as much as 20%.
Let’s delve a little deeper into whether operating in the Permian is still profitable for the large integrated energy giant. According to the data from the Federal Reserve Bank of Dallas, the shut-in price for existing wells in the Midland, a sub-basin of the Permian, is $42 per barrel. For Delaware, another sub-basin, the Federal Reserve Bank of Dallas estimated the price at $34 per barrel.
With West Texas Intermediate (“WTI”) crude oil hovering around the $80 per-barrel mark, significantly higher than the shut-in prices, it makes sense for XOM to continue production in the wells and generate cash flows. On the first-quarter earnings call, XOM mentioned that it is staying aligned with its plan of growing its production in the most prolific basin to 1.8 million oil-equivalent barrels this year.
Is High Oil a Dampener for Phillips 66?
The high price of oil is not in favor of PSX’s refining business. This is because refiners process crude oil to produce final products like gasoline, jet fuel and others. Hence, with the increase in crude price, their input costs are also surging, in turn affecting the bottom line.
However, investors should also consider the resilient business model of PSX. Although a leading refiner, PSX, unlike most of its refining peers, has diversified the business across midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating significant capital for midstream.
Midstream business, by its very definition, is stable since the company generates stable cash flows as the assets are being utilized for the long term and is less vulnerable to commodity price volatility. Hence, having a diversified business model, PSX is insulated from commodity price volatility to a great extent.
XOM or PSX: Which is a Better Stock?
Considering the valuation snapshot, it has become evident that ExxonMobil is currently trading at a discount compared with PSX. This is reflected in the fact that XOM trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 9.61X, below PSX’s 14.01X.
This means investors are willing to pay a premium for PSX relative to XOM. However, investors shouldn’t rush to bet on either of the stocks now since commodity prices and their trend are now highly difficult to predict, considering the ongoing conflicts between the United States and Iran.
However, those who have already invested in XOM and PSX should stay invested. Both XOM and PSX currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.