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Here’s Why Analysts Prefer Chevron over ExxonMobil

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Chevron’s (CVX) and ExxonMobil’s (XOM) stocks have reacted differently to the companies’ earnings releases on November 1. Though both companies’ adjusted earnings beat analysts’ estimates, Chevron’s reported earnings missed their forecast.

Wall Street initially reacted negatively to Chevron’s earnings miss, but the stock recovered later. Since November 1, ExxonMobil and Chevron have risen 6% and 4%, respectively.

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Analysts’ ratings for Chevron and ExxonMobil

For Chevron, analysts are mostly bullish. However, for ExxonMobil, they suggest watching and waiting. Of the 24 analysts covering ExxonMobil stock, 19 suggest “hold,” four suggest “buy,” and one suggests “sell.” For Chevron, 17 of 24 analysts suggest “buy,” and seven suggest “hold.”

Price targets for XOM and CVX

Similarly, analysts have adjusted their target prices for XOM and CVX since the companies’ earnings releases. Berenberg has raised its price target for ExxonMobil from $63 to $65. However, Berenberg has Chevron’s target from $135 to $128, and HSBC has cut it from $120 to $118. JPMorgan Chase and Cowen have lowered their targets to $139 and $134, respectively. Nevertheless, analysts’ mean targets of $137 and $79 for XOM and CVX imply similar gains of 12% and 13%.

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Why the diverse ratings?

The third quarter was weak for all energy companies. ExxonMobil’s and Chevron’s earnings fell 53% and 37% YoY, respectively. Meanwhile, peers Royal Dutch Shell (RDS.A) and BP (BP) saw their earnings fall 15% and 41% YoY.

Lower oil prices resulted in weaker hydrocarbon realizations in the quarter. However, XOM’s and CVX’s robust upstream portfolios have been a silver lining and may offer growth opportunities.

ExxonMobil and Chevron’s upstream portfolios

ExxonMobil’s upstream production has risen, led by growth in its Permian asset base. In the third quarter, ExxonMobil’s Permian production rose 70% YoY. And the company’s global upstream portfolio positions it for long-term growth. Its key assets worldwide are set to begin production or ramp up in the next few years, potentially offering exponential growth by 2024.

For Chevron, its billion-dollar Wheatstone and Gorgon projects have begun operations and will add to the company’s total output. Its rising Permian output is also supporting growth. The company expects its total upstream production to grow 4%–7% this year. Analysts may prefer Chevron for its upstream asset base positioning.

Chevron’s strong balance sheet

Additionally, Chevron’s balance sheet is stronger than ExxonMobil’s. While ExxonMobil’s capital structure comprises 19.3% total debt, Chevron’s comprises 17.4%. However, a few quarters back, it was the other way round. Chevron’s financial prioritization, which includes strengthening its balance sheet through debt reduction, has led to its turnaround.

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