Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (2024)

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (1)

It has been a bit more than a year since I first covered my investment thesis for Exxon Mobil (NYSE:XOM) and the integrated oil & gas majors more broadly. Back in September of last year I wrote 'Exxon Mobil: A Textbook Example Of Mean Reversion', where I explained why the company's valuation did not make any sense and why XOM alongside its high quality peers were set to outperform the market.

Needless to say, since then XOM has outperformed spectacularly and while nearly 90% return for a bit more than a year could be business as usual for high growth and small cap stocks, it is very rare in the large cap oil and gas space.

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (2)

Even more so, XOM was among the best performing integrated oil & gas majors within its peer group of Chevron (CVX), BP (BP), Royal Dutch Shell (RDS.B) and TotalEnergies (TTE).

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (3)

However, a few months later in April of 2021 I decided to take a long position in Chevron and as usual I laid out my investment thesis right after that.

At present, I still believe XOM to be a good investment opportunity over the long-term, although far less attractive than it was a year ago. I noted that in my article from March of this year when I indicated that XOM share price might be running ahead of fundamentals, but the long-term thesis is still in place.

In the following lines I will provide a comparison between XOM and CVX and rationalize my decision to stick with the latter.

At a glance

Over the past decade, the premium valuation that XOM had over CVX has slowly disappeared and now both companies have similar market premiums to their book value.

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (4)

This dynamic in Price-to-Book ratio reflects the closing gap and recent reversal in return on capital between the two companies.

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (5)

We should note, however, that these numbers are not forward looking and in the case of XOM - not adjusted for the $20bn impairment recorded in 2020. Adjusting the numbers for this one-off impairment charge is also simplifying the issue as it neglects long-term capital allocation decisions that led to it in the first place. That is why we need to dig much deeper than that.

What are multiples telling us?

On a time series basis, gross margin is one of the most important drivers of EV / EBTIDA multiples. This appears to be the case for Chevron, where the R-squared between the two variables since 2010 is 72%.

Source: prepared by the author, using data from Seeking Alpha & Yahoo! Finance

For Exxon Mobil, however, this is not the case and there seems to be no relationship at all between the two variables.

Source: prepared by the author, using data from Seeking Alpha & Yahoo! Finance

Even if we exclude the 2012-2014 period, the relationship is still much weaker than the one for Chevron.

** excluding 2012,2013 and 2014

Source: prepared by the author, using data from Seeking Alpha & Yahoo! Finance

This was partly due to Exxon's large divestments in 2011 and 2012 periods that had a temporary positive impact on profitability.

During 2012, we completed the sale of some of our Upstream assets, including a portion of our acreage in Angola and Norway. We also divested our Downstream and Chemical assets in Argentina, Uruguay, Paraguay, Central America, Malaysia, and Switzerland, and restructured and reduced our holdings in Japan.

Source: Exxon Mobil Annual Report 2012

On a cross-sectional basis, it's a similar story with both XOM and CVX this time standing at odds with the strong linear relationship between the rest of the peers. On the graph below the R-squared stands at only 10%, but if we take out the two U.S. giants, it jumps to 88%.

Source: prepared by the author, using data from Seeking Alpha

This could be explained by the worse political situation in Europe, where other integrated oil majors like Royal Dutch Shell, BP, and TotalEnergies are based. In addition, Exxon Mobil and Chevron stand out as more attractive in terms of overall leverage and financial health and of course they also benefit from the much higher valuations of the U.S. equity market. However, XOM once again appears more richly priced than CVX, if we take into account current gross margins.

Different cash flow and dynamics and capital allocation

On an EBITDA margin basis, CVX has been consistently more profitable than XOM, which seems to justify the generally higher valuation multiples of the former.

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (10)

Not surprisingly then, Chevron's cash flow margin has also been sustainably higher than that of Exxon Mobil over the years.

Source: prepared by the author, using data from Seeking Alpha

However, Chevron's higher capital expenditure relative to sales for most of the past decade has resulted in lower free cash flow than what the company's higher margins would suggest.

Source: prepared by the author, using data from Seeking Alpha

But since 2019 both companies now spend almost an equal share of their revenue on Capex. Over the past twelve months XOM and CVX spent 59% and 49% respectively on Capex relative to their depreciation and amortization expense. As a result, Exxon Mobil is now more expensive on a free cash flow basis than Chevron is.

Source: prepared by the author, using data from Seeking Alpha

That is why, in my view Chevron is better positioned to significantly increase investments in its lower carbon businesses going forward.

Source: Chevron Investor Presentation 2021

So far, however, Exxon Mobil's plan for lower emission investments appears more aggressive, with $15bn of capex up to 2027.

Source: Exxon Mobil Corporate Plan Update Presentation 2021

At present, XOM guides for Capex spend within the range of $20bn-$25bn during the 2022-2027 period, while CVX management targets $15bn-$17bn for 2022 to 2025. Using the midpoint of these ranges and the past 5-year average of cash flow from operations (2017 - 2021 TTM) for each of the companies, gives us the following Free Cash Flow targets.

* average for the 2017-2021 TTM period

Source: author's calculations

At current prices and diluted shares for XOM and CVX of 4,275m and 1,918m respectively, the former would have a free cash flow yield of 2.5% and the latter of 2.8% which is slightly in favor of Chevron.

Capital allocation also differs

For the 2010-2020 period, both companies did not differ materially in terms of their sources of capital. Both companies derived almost equal shares from operations, debt increases and divestitures. The cumulative issuance of common stock over the period was about $2bn for both companies, which in this case is immaterial and omitted from the chart below.

Source: prepared by the author, using data from Seeking Alpha

In terms of cash outflows, however, XOM spent significantly lower share on capital expenditures over the period, while at the same time the relative amount of stock repurchases was considerably higher.

Source: prepared by the author, using data from Seeking Alpha

The vast majority of those share repurchases were made prior to 2015, when the company's Price-to-Book ratio was much higher than it is today.

Source: prepared by the author, using data from Seeking Alpha & Seeking Alpha

Chevron on the other hand has spent much less on share buybacks, while also repurchasing shares at much lower multiples in 2019 and 2020.

Source: prepared by the author, using data from Seeking Alpha & Seeking Alpha

In summary, Chevron has consistently higher cash flow margin and due to its currently at par with that of XOM level of capital expenditure to sales, it generates higher free cash flow. At the same time, historically, CVX has spent a larger share of its capital on capital expenditure, while also engaging in less share buybacks at high valuation levels.

Strategy and operations

Finally, we will have a closer look at how the two companies' strategy and operations differ from each other. To begin with, we'll state the obvious that although Exxon's market cap is just slightly above that of Chevron, the former is much larger in terms of overall footprint and geographical reach.

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (21)

Exxon Mobil Business Overview

Source: Exxon Mobil Annual Report 2020

In upstream, XOM proved and developed consolidated reserves of crude oil are about twice as high as those of Chevron. However, CVX is larger in terms of natural gas reserves, which creates a different dynamic in terms of profitability.

Source: prepared by the author, using data from Exxon Mobil and Chevron annual reports

This makes CVX more heavily exposed to natural gas pricing, which has declined significantly in recent years, albeit exhibiting lower price volatility than crude had.

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (24)

Source: eia.gov

In the downstream segment, XOM once again eclipses CVX in terms of capacity. Exxon Mobil has significantly larger capacity overseas (predominantly in Europe and Asia), while in the U.S. it owns much larger refineries.

Source: prepared by the author, using data from eia.gov

This larger size and significant chemical operations allowed XOM to become a heavily integrated oil major, thus gaining a major competitive advantage. That is why, back in 2015 this integration was seen as Exxon's key for future success.

Source: corporate.Exxon Mobil.com

Now more than ever, the key can be integration - integration across the entire length of the chemical value chain. It means integration with feedstock sources, including oil, gas, coal or refineries to maximize advantage.(...)Access to advantaged feedstock remains the cornerstone of success in petrochemicals. Integration with feedstock production can help companies create a competitive edge.

Source: corporate.Exxon Mobil.com

In addition, profitability of Exxon's large chemical division has increased significantly over the recent quarters as commodity prices remain elevated.

Source: prepared by the author, using data from annual and quarterly reports

All that, however, was not enough for Exxon to achieve a meaningfully higher return on capital than Chevron, even when adjusted for one-off items.

ROIC = EBT excl. unusual items / (Total Equity + Net Debt)

Source: prepared by the author, using data from Seeking Alpha

While Chevron's chemical operations are much smaller in size and are operated under a joint venture with Phillips 66 (PSX), its high return on capital in upstream more than compensates for that.

Source: Chevron Investor Presentation 2021

In downstream, CVX is not as integrated as Exxon is, however, the company's high margins stem from its much more complex refining operations.

Source: Chevron 2019 Security Analyst Meeting

Going forward, both companies are pivoting towards carbon capture and storage and alternative fuels and hydrogen. Chevron, has already created a new division, called New Energies, that will be focused on these areas except for renewable fuels, which remains under Downstream and Chemicals

Source: Chevron Investor Presentation 2021

Conclusion

In spite of the stellar performance over the past year, there is still a case for long-term investment in U.S. oil majors - Exxon Mobil and Chevron. Deciding against one or the other is without a doubt a tough call that could potentially be avoided through a well-diversified portfolio holding both. As someone who has a highly concentrated equity portfolio, however, I made the decision to stick with Chevron due to all the reasons mentioned above - from the slightly more attractive valuation relative to fundamentals, to what's in my view a more disciplined capital allocation process and a stronger free cash flow generation ability.

Vladimir Dimitrov, CFA

Vladimir Dimitrov, CFA is a former strategy consultant within the field of brand and intangible assets valuation. During his career in the City of London he has been working with some of the largest global brands within the technology, telecom and banking sectors.

He graduated from the London School of Economics and is interested in finding reasonably priced businesses with sustainable long-term competitive advantages.

Vladimir is the leader of the investing group The Roundabout Investor where he teaches the process of evaluating roundabout investments; defined by potential high capital return, growth in free cash flow, safe dividends and conservative capital allocation. He offers weekly investment ideas, a model portfolio, a watchlist, macro outlooks, and sector deep dives. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CVX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Exxon Mobil Vs. Chevron Stock Or Both (NYSE:XOM) (2024)

FAQs

Is Chevron or Exxon a better stock? ›

Exxon currently pays $3.80 in dividends annually, yielding 3.28% on the current price. The oil behemoth's four-year average dividend yield stands at 5.06%. Chevron, on the other hand, boasts an even higher dividend yield, as it pays $6.52 per share annually.

Is ExxonMobil a good stock to invest in? ›

Based on analyst ratings, Exxon Mobil's 12-month average price target is $137.07. Exxon Mobil has 20.85% upside potential, based on the analysts' average price target. Exxon Mobil has a consensus rating of Moderate Buy which is based on 11 buy ratings, 4 hold ratings and 0 sell ratings.

Why is Exxon stock doing so well? ›

Exxon's rapidly growing Low Carbon Solutions business is a great way for the company to diversify its earnings and hedge against a gradual decline in oil demand and the energy transition. However, Exxon has made it clear it isn't just investing in low carbon for the favorable press -- it is doing so to make money.

Does ExxonMobil have preferred stock? ›

Exxon Mobil's preferred stock for the quarter that ended in Mar. 2024 was $0 Mil. The market value of preferred stock needs to be added to the market value of common stocks in the calculation of Enterprise Value. Exxon Mobil's Enterprise Value for the quarter that ended in Mar.

What is the best oil stock to buy now? ›

Best-performing oil stocks
TickerCompanyPerformance (Year)
MPCMarathon Petroleum Corp68.34%
FANGDiamondback Energy Inc62.00%
PSXPhillips 6655.12%
VLOValero Energy Corp.46.80%
1 more row
7 days ago

Should I keep my Chevron stock? ›

Chevron Corporation CVX is a leading integrated energy player. This Zacks Rank #3 (Hold) company's earnings beat estimates in three of the last four quarters and missed the same in one. The Zacks Consensus Estimate for CVX's 2024 and 2025 earnings per share (EPS) is pegged at $13.13 and $15.58, respectively.

Is Chevron a good stock to buy? ›

Chevron Corp has a consensus rating of Strong Buy which is based on 12 buy ratings, 3 hold ratings and 0 sell ratings. The average price target for Chevron Corp is $187.20. This is based on 15 Wall Streets Analysts 12-month price targets, issued in the past 3 months.

What are the risks of investing in ExxonMobil? ›

Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19. International Operations – risks related to the global nature of the company. Capital Markets – risks related to exchange rates and trade, cryptocurrency.

What will Exxon stock be in 5 years? ›

Exxon Mobil stock price stood at $113.09

According to the latest long-term forecast, Exxon Mobil price will hit $125 by the end of 2024 and then $150 by the end of 2026. Exxon Mobil will rise to $200 within the year of 2030 and $250 in 2035.

Who owns most stock in Exxon? ›

According to the latest TipRanks data, approximately 28.55% of the company's stock is held by institutional investors, 0.72% is held by insiders, and 51.70% is held by retail investors. Vanguard owns the most shares of Exxon Mobil (XOM).

What is the future of Exxon? ›

The company expects oil and gas production in 2024 to be about 3.8 million oil-equivalent barrels per day, rising to about 4.2 million oil-equivalent barrels per day by 2027, driven by growth in the Permian and Guyana.

What stocks are a strong buy right now? ›

Sign up for Kiplinger's Free E-Newsletters
Company (ticker)Analysts' consensus recommendation scoreAnalysts' consensus recommendation
Microsoft (MSFT)1.33Strong Buy
Bio-Techne (TECH)1.39Strong Buy
Alexandria Real Estate Equities (ARE)1.39Strong Buy
Emerson Electric (EMR)1.39Strong Buy
21 more rows

Is ExxonMobil a good long term stock? ›

Exxon Mobil Corp (NYSE:XOM), the world's second-largest energy company, could be a good income stock for long-term investors. Despite high volatility, the stock has made significant gains since January, outperforming the broader energy sector, which has gained 11.3% year to date.

Is Exxon a safe stock? ›

ExxonMobil has ridden higher oil prices to excellent performance. The integrated oil giant's dividend is as safe as it's ever been. Shares have priced in a lot, leaving less room for new investors to benefit.

Does ExxonMobil pay monthly dividends? ›

Exxon Mobil Corporation's ( XOM ) ex-dividend date is May 14, 2024 , which means that buyers purchasing shares on or after that date will not be eligible to receive the next dividend payment. Exxon Mobil Corporation ( XOM ) pays dividends on a quarterly basis.

Which gas stock is best? ›

Overview Of Best Natural Gas Stocks In India
  • Reliance Industries Limited: Reliance Industries Limited is a diverse conglomerate with a strong position in the natural gas field. ...
  • Oil and Natural Gas Corporation (ONGC): ...
  • Petronet LNG Limited: ...
  • Gujarat Gas Limited: ...
  • Gujarat State Petronet Limited: ...
  • Mahanagar Gas Limited:
May 21, 2024

Is Mobil or Chevron better? ›

Mobil stores ranked No. 2 for cleanliness (behind Chevron) and restrooms, but the chain fell to the No. 5 position in Gasbuddy's survey for coffee, so if you're a java junkie, you might want to look elsewhere.

Is Chevron a good long term stock? ›

Chevron's completion of the Tengiz oilfield expansion project and its strong balance sheet make it an attractive long-term investment. The company's valuation is very appealing relative to its peers and the market as a whole.

What is the best performing natural gas stocks? ›

Quick Look at the Best Natural Gas Stocks:
  • Exxon Mobil Corporation.
  • Cheniere Energy Inc.
  • Chesapeake Energy Corp.
  • Antero Resources.
  • Black Stone Minerals LP.
  • EQT Corp.
  • Earthstone Energy, Inc.
  • Range Resources Corporation.

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