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Exxon Vs. Chevron: Which Oil Major Is The Better Bet Now?

By Investing.com (Haris Anwar/Investing.com)Stock MarketsApr 12, 2021 09:28AM ET
www.investing.com/analysis/exxon-vs-chevron-which-oil-major-is-the--better-bet-now-200572469
Exxon Vs. Chevron: Which Oil Major Is The Better Bet Now?
By Investing.com (Haris Anwar/Investing.com)   |  Apr 12, 2021 09:28AM ET
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After a devastating 2020, during which oil demand plummeted as the pandemic escalated, big oil stocks have become a great recovery bet for investors. The Vanguard Energy Index Fund ETF (NYSE:VDE)—whose top 10 holdings include ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX) and Phillips 66 (NYSE:PSX)— have surged 29% this year versus the S&P 500’s 9% expansion during the same period.

The latest trend in oil markets suggests that energy stocks have passed the worst of the pandemic-driven crisis as oil demand slowly increases, fueled by both OPEC+ production cuts and countries reopening after COVID-19 lockdowns, reviving industrial production and bringing cars back onto roads.

Even after the recent powerful run, some of the largest oil stocks could still be offering some upside if we assume that the global economy is about to enter a multiyear of massive expansion as the vaccine rollouts accelerate and the coronavirus becomes contained. Keeping this theme in mind, we're focusing on the two largest US producers—Exxon and Chevron—to see which “super major” could prove a better bet in this environment.

1. ExxonMobil

Among US oil and gas supermajors, Exxon was the least-favored oil stock during the pandemic. In early 2020, its shares were massively beaten down when the company was forced to roll back its ambitious expansion plans after the price of oil collapsed in the early part of the year. 

XOM Weekly TTM
XOM Weekly TTM

While announcing its fourth-quarter earnings in January, Exxon reported its first annual loss in at least three decades, taking a $19-billion impairment charge, with cash flows swinging to negative $20 billion after dividend payouts were included.

That blow had a more devastating impact on Exxon when compared with other energy giants. It turned the company’s expansionist approach—which was based on huge spending to find more oil and gas at a time when the world is moving to clean sources of energy—upside down.   

Besides the pandemic-triggered crash in oil markets, Irving, Texas-based Exxon announced it was laying off thousands of employees, and was dropped from the 30-component, blue-chip Dow Jones Industrial Average in late August, after its market value plunged.

During that period, investors were extremely doubtful about its ability to continue paying dividends. After facing what has clearly been the most challenging year in the company's history, CEO Darren Woods has come up with a plan to win Wall Street’s confidence.

Woods' new blueprint for XOM diverts capital spending to advantaged assets with the highest potential future value, including developments in Guyana and the US Permian Basin, targeted exploration in Brazil and chemicals projects to grow high-value performance products.

Investors seem to be cozying up to this turnaround strategy. The company’s stock price, which closed on Friday at $55.87, is up more than 60% in the past six months. Exxon pays a quarterly dividend of $0.87-a-share with an annual yield of 6.2%.

In a note last week, Goldman Sachs said Exxon is a better buy based on its long-term earnings revision story, which hinges on its Chemicals’ division and spending control measures. Goldman has a $65 target on Exxon. That's 16% above where the stock closed on Friday.

2. Chevron

Chevron is emerging from the wreckage of 2020 in much better shape than Exxon. What rescued the San Ramon, California-based energy giant were its tight controls over spending as well as doing away with major expansion plans during the past five years.

CVX Weekly TTM
CVX Weekly TTM

That strategy kept CVX shares well-supported during the past five years, during the period when Exxon saw its share value plunge. Still, there's no escaping the reality that while Chevron’s strategy of holding spending on a tight leash was correct, it also needed to borrow heavily to pay its dividends after the collapse in oil prices last year led to tight refining margins.

In 2020 Chevron paid out more cash in dividends ($9.7 billion) than it spent on capex ($8.9 billion). That hasn’t happened for Chevron in at least the past 30 years, according to data compiled by Bloomberg. In addition, last year’s acquisition of Noble Energy, a deal that closed in October, pushed Chevron's leverage ratio to 23%, the highest year-end level since 2002.

According to Goldman, Chevron’s multiyear outperformance when compared to Exxon, has run its course. The firm's analysts, led by Neil Mehta, wrote in a note to clients:

“We continue to have a positive view of the balance sheet, dividend sustainability, growth outlook in the Permian, and free cash flow from the Australia LNG assets.” 

But they noted that after Chevron’s relative outperformance over the last few years, the stock now trades at a premium to peers on several metrics, including enterprise value to debt-adjusted cash flow, as well as price to earnings.

After gaining 22%, Chevron stock traded at $102.92, with an annual dividend yield of about 5%. The company pays $1.29 a share quarterly.

Bottom Line

Until last year, in the energy space, Exxon was a riskier bet than Chevron. But the US's largest oil giant has now succeeded at changing that perception by re-balancing its portfolio and pursuing major cost cuts.

After this turnaround, coupled with an improved oil price outlook, Exxon stock is a better buy, and the company is in  a better position than it was last year to save its $0.87-a-share quarterly dividend.

Exxon Vs. Chevron: Which Oil Major Is The Better Bet Now?
 

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Exxon Vs. Chevron: Which Oil Major Is The Better Bet Now?

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Comments (13)
Erikas Ivan
Erikas Ivan Apr 13, 2021 10:30AM ET
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Agree with pretty much everything here, thank you!
David Smith
David Smith Apr 12, 2021 6:20PM ET
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Excellent analysis in XOM. I definitely agree with the conclusions.
Clyde McClellan
Clyde McClellan Apr 12, 2021 3:07PM ET
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neither,oxy petroleum better than both.lol
David Bennett
David Bennett Apr 12, 2021 1:49PM ET
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not exxon
Bojan Dizzy
Bojan Dizzy Apr 12, 2021 1:25PM ET
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Hello
Insanitygoes On
Insanitygoes On Apr 12, 2021 1:20PM ET
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Hi newbie here
Inte Ally
Inte Ally Apr 12, 2021 1:11PM ET
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Young p De Rapper
Young p De Rapper Apr 12, 2021 1:11PM ET
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how are you doing
Scott Trade
Scott Trade Apr 12, 2021 1:02PM ET
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Electric / Batter is better and the wave of the future
Young p De Rapper
Young p De Rapper Apr 12, 2021 1:02PM ET
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what
Thomas R Engel
Thomas R Engel Apr 12, 2021 10:00AM ET
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You're sort of late to the party!  I bought XOM back in March---2020!  Cash dividend yield of 9.5% on purchase price; no need to raise the dividend.  Also bought OXY at 9.90/9.65 because I could and YOLO and it's only money.  Now if you'll excuse me I'll go see about whether to shear the Gamestop Redditors with Buying to Cover on my FOURTH Gamestop Short.  MAde over 5600USD so far since Feb. 27th..
Thomas R Engel
Thomas R Engel Apr 12, 2021 9:55AM ET
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I bought already, in mid-March----2020.  Where were you?  IF they can keep that steady--no need to increase--I'm getting 9.5% cash on purchase price.  But OXY for really boosting your money--also bought that in March 2020.  March 2020 was a great time to buy (most) things.  Thanks to a forced all-cash takeover of ARQL I had bales of cash--nice time to have same.  Now if you'll excuse me I have to check on shearing some more Redditors on my latest Gamestop Short at 183.
Altaf Ali
Altaf Ali Apr 12, 2021 9:19AM ET
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Exxon has a stellar record of paying its shareholders consistently over past 50 years. Its a conservative company. I wish it can put its talents to ease the world of its climate challenges, too.
Akash kumar Gajendra kumar
Akash kumar Gajendra kumar Apr 12, 2021 7:52AM ET
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6398957966
Sulyman Ashiq
Sulyman Ashiq Apr 12, 2021 4:01AM ET
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Good morning sir aap ka number mil sakta hé me New hu stock market me informatie cheyeh app se
ch M amir desy monda
ch M amir desy monda Apr 12, 2021 4:01AM ET
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G sirStock ki information milsti ha
ch M amir desy monda
ch M amir desy monda Apr 12, 2021 4:01AM ET
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00971503107785
 
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