ExxonMobil (XOM) and Chevron (CVX), the two major integrated oil and gas companies, have been in the spotlight lately due to surging crude oil prices. The stocks have also surged so far this month. While XOM’s stock price has risen by 2.4% in November, CVX’s stock price has surged by 3.9%. In such a favorable scenario, let’s review which company looks better positioned than the other.
XOM or CVX: Financial leverage
ExxonMobil and Chevron are both financially stable companies that have borne the brunt of numerous oil price cycles. However, they still stand firm in their leverage positions.
At the end of the third quarter, XOM’s total-debt-to-total capital ratio stood at 19.3%, whereas CVX’s ratio stood at 17.4%. So, Chevron had less debt on its balance sheet than ExxonMobil.
Chevron had lower debt due to its strict financial discipline, as the company has clear cash priorities. Its first priority is paying consistent and growing dividends, and its second priority is strengthening its balance sheet by reducing debt—exactly what Chevron did this year.
In the first nine months of 2019, Chevron’s cash outflows toward dividends stood at $6.7 billion. Plus, its outflows toward debt repayments stood at $1.9 billion, net of long-term and short-term repayments and borrowings.
On the other hand, ExxonMobil saw a rise in its net debt cash flows in the first nine months. Its net debt cash inflows stood at $9.3 billion.
So, Chevron’s lower debt ratio and net debt outflows place it a step ahead of ExxonMobil with respect to financial strength.
XOM or CVX: Liquidity position
For energy companies, capital expenditures and dividend payments are the two crucial and perhaps indispensable cash outflows. Let’s see whether XOM and CVX’s operating cash inflows covered both these expenses.
In the first nine months of the year, Chevron’s operating cash inflows of $21.7 billion adequately covered its capex outflows of $9.9 billion and dividend outflows of $6.7 billion. CVX was left with $5.0 billion of surplus operating cash after accounting for these expenses. So, Chevron’s surplus cash flow stood at 23% of its operating cash inflows.
However, ExxonMobil’s operating cash inflow of $23.4 billion was unable to cover its combined outflow of capex and dividends, which stood at $17.8 billion and $10.9 billion, respectively. XOM fell short by $5.2 billion, or 22% of its operating cash inflows in covering its significant outflows. Unsurprisingly, the company raised additional debt in the year to fill the shortfall.
In our view, Chevron looks better than ExxonMobil with respect to this year’s liquidity position.
XOM or CVX: Growth outlook
Both ExxonMobil (XOM) and Chevron (CVX) have been investing heavily in their upstream and downstream portfolios. While XOM has positioned itself for long-term growth, CVX has a series of startups and ramp-ups to encourage fast growth.
In 2019, analysts expect both companies’ earnings to fall. While they expect XOM’s profits to slump by 45% in 2019, analysts expect CVX’s earnings to fall by 18%. However, they expect XOM and CVX’s earnings to recover by 42% and 9%, respectively, in 2020. By the end of 2020, analysts expect XOM’s earnings to fall by 21% and CVX’s earnings to drop by 10%.
As a result, analysts expect a lower decline in CVX’s earnings than XOM over the next two years.
In our view, Chevron looks better placed than ExxonMobil with respect to financial leverage, liquidity, and growth positions. Chevron has a better debt-to-capital ratio, surplus operating cash flows, and a lower decline in estimated earnings.
To learn more about energy stocks’ performance in this quarter, please read Energy Stocks in Q4: ExxonMobil, Chevron, Shell, and BP.