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Valuations: Where Do XOM, CVX, Shell, and BP Stand?

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The valuations of integrated energy stocks ExxonMobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) have taken a beating in the current quarter. Volatile equity markets and oil prices have impacted these stocks. Let’s review the valuations of these stocks.

The average price-to-earnings (or PE) and forward EV-to-EBITDA ratios of these four companies stand at 13.2x and 5.7x, respectively. ExxonMobil stock trades at a 17.0x forward price-to-earnings ratio and a 7.4x forward EV-to-EBITDA ratio—both higher than the peer averages.

Likewise, Chevron trades above the peer averages on both parameters at a 15.3x forward PE multiple and a 6.2x forward EV-to-EBITDA ratio. However, Shell and BP trade below their peer averages on both ratios, as shown in the chart above.

ExxonMobil and Chevron’s higher valuations

ExxonMobil and Chevron’s higher valuations are primarily due to their financial strength. Both companies have a lower percentage of debt on their balance sheets compared to their peers. While ExxonMobil’s total debt stands at 19% in its capital structure, Chevron’s total debt stands at 16%. These ratios are lower than Shell and BP’s total debt ratios, which have risen above 30%.

Both companies saw higher upstream production in the second quarter. ExxonMobil’s hydrocarbon production rose by 7% YoY to 3.91 MMboepd (million barrels of oil equivalent per day) in the second quarter, and Chevron’s output grew 9% YoY to 3.08 MMboepd.

However, ExxonMobil’s upstream portfolio is more skewed toward long-term growth. ExxonMobil’s major projects are expected to be operational by 2025, which would add to half of its upstream earnings. However, Chevron expects its upstream production to rise 4%–7% in 2019.

Wall Street analysts have positive expectations from these companies’ 2020 earnings growth. They expect ExxonMobil’s earnings to fall 31% in 2019 but rise 37% in 2020. Also, analysts expect Chevron’s EPS to fall 10% in 2019 but increase 17% in 2020.

Shell and BP’s ratios

Shell and BP’s valuations are lower, primarily due to their debt positions, which we discussed above. However, both companies are progressing well on their growth paths.

In the second quarter, Shell strengthened its financials by capex optimization, divestments, cost reductions, and timely new projects. As a result, Shell could repay its debt partially and render shareholder returns via dividends and buybacks.

Further, Wall Street analysts expect Shell’s earnings to rise 22% in 2020. Shell has several projects in various phases of development. These projects are expected to provide growth in production, earnings, and cash flows to the company by 2020. In the second quarter, Shell’s hydrocarbon production rose 4% YoY to 3.58 MMboepd.

Moving to BP, the company has been progressing well on its five-year target of gearing, returns, capex, and divestment. Also, BP intends to return more than 10% on average capital employed by 2021.

Further, BP’s upstream portfolio has grown stronger. In the second quarter, the company’s hydrocarbon production increased by 6.5% YoY to 2.63 MMboepd. So far, BP has 23 upstream projects online since 2016. By 2021, BP expects its net production to rise by 0.9 MMboepd. Wall Street analysts expect BP’s earnings to rise by 20% in 2020.

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