Analysts’ ratings for integrated energy companies
Let’s review Wall Street analysts’ opinions on ExxonMobil (XOM) and Chevron (CVX) ahead of their first-quarter earnings results. XOM and CVX are covered by 20 and 22 analysts, respectively. Of these analysts, 35% have rated XOM as a “buy,” while 73% have rated Chevron as a “buy.”
Chevron’s implied gain of 12% stands far above ExxonMobil’s implied gain of 4%. Thus, it seems like analysts prefer Chevron to ExxonMobil right now. Let’s dig a bit deeper to identify the reasons why.
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XOM’s and CVX’s financials
ExxonMobil has strong financials with comfortable debt and an excellent liquidity position. In fact, in the fourth quarter, ExxonMobil had the lowest total debt-to-total capital ratio in the industry at 16%. The company had a surplus cash flow of ~7% of its cash flow from operations after covering its capex and dividend payments in 2018.
In comparison, Chevron had the second-best debt position in the industry in the fourth quarter. The company’s total debt-to-total capital ratio stood at 18%. It had a higher surplus cash flow of 27% of its cash flow from operations in 2018—better than ExxonMobil’s.
XOM’s and CVX’s upstream portfolios
ExxonMobil has a vast upstream portfolio, which is expected to propel its long-term growth. Its principal projects are expected to be operational by 2025, which will add ~50% to its upstream earnings.
Relatively speaking, Chevron is expected to post ~4%–7% growth in its upstream volumes in 2019. The company saw record hydrocarbon production in 2018 driven by the ramping up of volumes in the Gorgon, Wheatstone, and Permian regions. The expectation of high growth in Chevron’s volumes in 2019 could be viewed favorably by the analyst community.
XOM’s and CVX’s valuations
ExxonMobil stock is trading at a premium forward PE of 17.7x, the highest among its peers. Chevron’s forward PE is lower than ExxonMobil’s forward PE of 16.6x.
More analysts have favorable opinions on Chevron perhaps due to its upstream volume growth expectations for 2019, its relatively low valuation, and its better liquidity position.