Starting this week, the market will experience a significant influx of financial disclosures from energy companies, with two leading integrated energy giants, Exxon Mobil Corporation XOM and Chevron Corporation CVX, slated to report earnings on Apr 26. Most investors are likely contemplating which stock is in a better position ahead of first-quarter 2024 earnings.
XOM’s Price Performance Solid, CVX Lags
ExxonMobil has proven to be incredibly rewarding since the beginning of the year, gaining 22.2% year to date, surpassing the 13.5% rise of the composite stocks belonging to the Zacks Oil and Gas Integrated International industry. A solid pipeline of profitable upstream projects centered around the prolific Permian and Guyana assets is among the key factors that are leading to the outperformance.
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Highly favorable oil prices, as evidenced by the average spot West Texas Intermediate crude oil prices per barrel in January, February and March of $74.15, $77.25, and $81.28, respectively, according to the US Energy Information Administration’s data, are also bolstering the energy major’s price performance, and might have backed XOM’s first-quarter earnings.
The Zacks Consensus Estimate for first-quarter earnings per share stands at $2.19, with revenues estimated at $86.6 billion. Notably, our proven model predicts an earnings beat for ExxonMobil this time around because the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. XOM has an Earnings ESP of +0.13% and a Zacks Rank #3.
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Contrary to expectations, despite gaining 10.3% so far this year, Chevron is currently trailing behind both ExxonMobil and the industry, as depicted by the price chart. This could be attributed to the pivotal role that favorable oil prices and its Permian assets play in driving the stock price, while the uncertainty surrounding Chevron’s acquisition of Hess Corporation HES acts as a deterrent.
Also, our proprietary model does not predict an earnings beat for Chevron this time around, as CVX has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimate for first-quarter earnings per share stands at $2.84, with revenues estimated at close to $50 billion.
Prudent Approach: Waiting for Ideal Entry Points for Both Stocks
ExxonMobil’s price chart may continue to show strength, given the company’s anticipated closure of its substantial $59.5 billion all-stock acquisition deal with Pioneer Natural Resources PXD in the second quarter of 2024. This deal closure is poised to enhance ExxonMobil’s presence in the Permian Basin, the most prolific basin in the United States, as Pioneer Natural is a leading oil producer in the region.
Story continues
ExxonMobil’s Permian production is thus set to more than double to 1.3 million barrels of oil equivalent per day (MMBoE/D). Additionally, the company has projected that this production figure will increase to an impressive 2 MMBoE/D by 2027.
Numerous major discoveries in the Stabroek Block, located off the coast of Guyana, have also contributed to ExxonMobil’s notable progress in its production outlook. The growth projects in Guyana offer advantages in terms of lower greenhouse gas intensity compared to many other oil and gas-producing resources worldwide.
Despite the positive developments favoring the stock, investors should wait for a better entry point. This is because shares are somewhat expensive on a relative basis, with the current 6.50X trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization sitting above the 6.14X five-year median. Also, the company is trading at a premium to the Zacks Oil and Gas International Integrated industry average of 4.04X.
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Now, let’s delve into Chevron’s story. A strong presence in low-cost oil and gas resources like the Permian is benefiting the stock. Being one of the largest producers of oil and gas in the most prolific basin, CVX holds a solid track record of disciplined capital expenditure, which supports its substantial cash flow generation.
Despite the positive aspects, investors are troubled by the uncertainty regarding Chevron’s acquisition of Hess. Hess, with its robust presence in the promising Guyana’s Stabroek Block, could greatly enhance Chevron’s business. However, legal complications involving assets in Guyana, where its major competitor ExxonMobil is also engaged, are probably jeopardizing the pending $53 billion deal.
On the valuation front, CVX is also somewhat expensive on a relative basis, with the current 6.22X trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization above the 5.96X five-year median.
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Capping Off
Considering the current uncertainty surrounding CVX’s acquisition of Hess, we can say that ExxonMobil is on a better footing than Chevron. However, investors should refrain from rushing to buy XOM, which is lagging behind its peers in terms of shareholder returns, before Apr 26. Instead, they should monitor the stock closely for a more appropriate entry point.
Aside from the acquisition threat, numerous fundamental factors, such as low-cost assets, capital discipline, and a robust management team, favor CVX. A sturdy balance sheet will help sustain the stock during challenging business conditions. Therefore, investors should closely monitor it and wait until the uncertainty surrounding the acquisition is resolved.
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Chevron Corporation (CVX) : Free Stock Analysis Report
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Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
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