XOM, CVX, RDS.A, and BP: Analyzing the Valuations



Integrated energy stocks’ valuation

In this part, we’ll discuss ExxonMobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), and BP’s (BP) forward valuations. For these companies, the average forward EV-to-EBITDA multiple is 5.9x, while the average PE ratio is 14.5x, respectively.

ExxonMobil stock trades at a forward EV-to-EBITDA multiple of 7.6x and a forward PE ratio of 17.6x. Both of ExxonMobil’s valuations are higher than the peer averages. Chevron trades above the peer averages on both parameters. Shell and BP trade below their peer averages on both valuation matrices.

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ExxonMobil and Chevron’s superior valuations

ExxonMobil has a sound integrated earnings model capable of generating earnings in a harsh business environment. ExxonMobil has a strong upstream portfolio and a modern downstream asset base, which could drive the long-term growth and improve the company’s margins. In 2018, ExxonMobil had the lowest total debt-to-total capital ratio and cash flow surplus.

Chevron has a strong upstream portfolio, which could drive its volumes growth. Chevron’s mega-projects like Gorgon, Wheatstone, and Permian have started delivering results. Chevron’s volumes grew ~ 7% in 2018, which was at the higher end of its forecast range of 4%–7%. The company also had a sound debt and liquidity position in 2018.

Shell and BP’s discounted valuations

Shell and BP’s valuations are lower due to their debt positions. Compared to ExxonMobil and Chevron, Shell and BP have more debt in their capital structure. While ExxonMobil and Chevron’s total debt-to-total capital ratios were 16% and 18%, respectively, in 2018, Shell and BP’s ratios were 28% and 39%, respectively. BP’s cash flow from operations didn’t cover its essential expenses like the capex and dividends.

However, Shell had a cash flow surplus in 2018. The company has a strong upstream portfolio. BP also has a healthy upstream project pipeline, which could generate production growth. These factors partially offset the lower valuation in these stocks.


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