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Comparing XOM’s, CVX’s, Shell’s, and BP’s Implied Gains

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Analysts’ ratings for integrated energy companies

In the previous article, we began reviewing integrated energy companies’ analyst ratings ahead of their fourth-quarter earnings results. We compared the overall ratings of four companies: ExxonMobil (XOM), Royal Dutch Shell (RDS.A), BP (BP), and Chevron (CVX). We also looked at analysts’ rating details for Shell and Chevron.

Now let’s look at analysts’ rating details for BP and ExxonMobil.

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Why are analysts’ opinions on BP divided?

Analysts’ opinions on BP are divided likely due to the company’s high earnings growth expectation and weak debt position. In 2018, analysts expect BP’s earnings to rise ~96%, which seems achievable given its higher upstream and stable downstream earnings in the first nine months of the year. In the same period, BP’s adjusted earnings more than doubled YoY (year-over-year).

However, BP’s debt ratio (total debt-to-total capital) of 38% stood higher than those of its peers in the third quarter. ExxonMobil’s, Chevron’s, and Royal Dutch Shell’s ratios stood at 17%, 19%, and 28%, respectively, in the quarter. Analysts may keep their “hold” and “sell” ratings for BP until the company’s debt ratio plunges below the peer average.

BP’s mean target price stands at $49 per share, implying a potential 23% rise from its current level.

ExxonMobil’s high “hold” and “sell” ratings

ExxonMobil is a financially healthy company with a comfortable debt position and an excellent liquidity position. In fact, in the third quarter, ExxonMobil had the lowest total debt-to-total capital ratio in the industry. Also, the company had surplus cash from operations after covering its capex and dividend payments in the first nine months of the year.

However, ExxonMobil stock is trading at a premium to the peer average. It has a forward PE of 13.9x, the highest among its peers. Presumably due to its premium valuations, many analysts have rated the stock as a “hold” or a “sell.”

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