Today we’re going to talk about two of the energy giants – ExxonMobil (XOM.US)$ and Chevron (CVX.US)$ .

Both companies were developed from the Standard Oil Company of the oil tycoon Rockefeller and witnessed the century-old situation of the oil industry. In the last century, Standard Oil was forced to split into seven oil companies (also known as the “Seven Oil Sisters”) due to monopoly issues. Up to now, 4 of the 7 companies continue to operate. They are Exxon Mobil, Chevron, $Shell PLC (SHEL.US)$ and $BP (BP.US)$ .

I’m talking about these two companies because energy stocks are doing so well. Since the beginning of this year, affected by the repeated outbreak of the new crown epidemic and geopolitical tensions, the energy crisis has swept the world, oil and natural gas prices have soared, and the oil and gas sector has continued to strengthen. The stock prices of many companies have continued to hit record highs, including Exxon Mobil. , Chevron, $ConocoPhillips (COP.US)$ , $Marathon Crude Oil (MPC.US)$ , etc. From the starting point of this round of rises – in late March 2020, both Chevron and Exxon Mobil have risen by about 260% so far.

It is difficult for us to predict how long this round of rise in the oil and gas sector will last. However, due to the rising problem of energy supply, natural gas prices continue to rise sharply, and oil prices are also prone to rise and fall. After the profit, instead of continuing to invest to increase supply, it maintained a prudent capital expenditure plan and returned shareholders through buybacks and dividends. Therefore, some analysts believe that the rise in the oil and gas sector may not end in the short term .

So, in terms of ExxonMobil and Chevron, who has more potential? Why has Warren Buffett added Chevron instead of Exxon Mobil in the last three quarters?

Chevron’s performance growth is faster, Exxon Mobil’s valuation is relatively lower

From a business point of view, ExxonMobil implements an integrated development strategy of upstream and downstream, that is, the integrated business of oil exploration and development, oil refining and chemicals, and product wholesale and retail. The company’s main business can be divided into three major sectors: upstream, downstream and chemicals.

The products of the upstream segment mainly include crude oil and natural gas; the products of the downstream segment mainly include gasoline, naphtha, diesel kerosene, aviation fuel, heavy oil and lubricating oil, etc.; the products of the chemical segment mainly include petrochemical products, polymers, general chemicals and plasticizers Wait. The company’s main source of revenue is the upstream sector.

Chevron is an integrated oil and gas company operating across multiple segments of the value chain, including upstream (production), midstream (pipeline and storage) and downstream (refining and marketing) operations. Chevron divides its business into two main segments: upstream and downstream.

Among them, the upstream business mainly includes the exploration, development and production of crude oil and natural gas, and product transportation, storage and marketing are also included in the upstream segment. Downstream operations mainly include refining crude oil into petroleum products and manufacturing renewable fuels. Most of Chevron’s revenue also comes from upstream operations.

Both Exxon and Chevron have the safest balance sheets in the industry, attractive earnings metrics and valuation metrics, and they buy back stock and return money to shareholders in large sums.

In the first quarter of this year, Exxon Mobil and Chevron achieved revenue of 87.734 billion US dollars and 52.314 billion US dollars respectively, a year-on-year increase of 52.44% and 68.34% respectively. The net profit attributable to the parent was 5.48 billion and 6.259 billion respectively, a year-on-year increase of 100.73% and 354.54%. Exxon Mobil and Chevron reported free cash flow of $10.877 billion and $6.095 billion respectively in the first quarter.

In addition to the performance growth rate, Chevron’s gross profit margin in the first quarter was 31.16%, which was also higher than Exxon Mobil’s 22.56%. Both companies have debt/EBITDA ratios well below 1x, reflecting strong financial strength.

As of May 30, Exxon Mobil’s dividend yield was 3.59% and Chevron’s was 3.05%; Exxon Mobil’s rolling price-earnings ratio was 16.18 times and Chevron’s was 16.75 times. Both indicators are relatively close.

Based on trailing 12-month free cash flow, Chevron trades at about 13 times P/FCF, higher than Exxon Mobil’s 10 times, suggesting that Exxon may be relatively undervalued.

ExxonMobil buys back more aggressively, Chevron pays more dividends

In terms of buybacks, ExxonMobil’s CEO said at the Q1 results conference, “The company returned $5.8 billion to shareholders, about two-thirds of which was in the form of dividends and the rest was share repurchases, in line with previous plans. We previously In a company plan update in December, we said it expects to repurchase $10 billion of stock. This time, we are announcing an increase in our repurchase program for a total of $30 billion in repurchases through 2023. ”

Chevron’s future share buybacks are less clear, and currently look far less than Exxon’s $30 billion.

When the second quarter 2021 results report was released, Chevron announced that it would resume share repurchases starting in the third quarter of 2021, with an annual repurchase of $2 billion to $3 billion in Chevron shares. It raised its repurchase guidance twice since, and announced at its annual investor meeting in March that it would raise its share repurchase guidance to $5 billion to $10 billion per year. At the first-quarter results meeting, Chevron revealed that it will buy back a record $10 billion in stock by the end of this year .

Assuming buybacks continue through 2023, Chevron’s buybacks would total $17.5 billion, compared with $30 billion for Exxon, said equity analyst Bill Zettler. However, in the first quarter of 2022, Chevron only repurchased $1.3 billion in stock. So at the repurchase level, Exxon Mobil is better.

In terms of dividends, Chevron has surpassed Exxon Mobil in both the amount and growth of dividends in the past five years. Neither company has made any specific dividend commitments, other than saying that increasing dividends is part of company policy. Relatively speaking, Chevron pays more generously than ExxonMobil.

Stock gods prefer Chevron, Goldman Sachs optimistic about Exxon Mobil

Warren Buffett is particularly optimistic about oil stocks this year. In addition to building a position in Occidental Petroleum, he also increased his holdings of Chevron. These two oil stocks are among the top ten stocks of the stock market, accounting for a total of 9.26% of the investment portfolio.

Compared with Exxon Mobil, the stock gods prefer Chevron. In fact, since the third quarter of last year, Buffett has continued to increase his positions in Chevron, with the largest increase in the first quarter of this year. But for Exxon Mobil, Buffett hasn’t held the stock since it was liquidated in the fourth quarter of 2014.

Buffett has said at the 2021 Berkshire Hathaway shareholder meeting that he sees no problems with continuing to own Chevron stock and expects Chevron to remain in the future even as the world increasingly turns to renewable energy. will continue to benefit society.

It is understood that Chevron is making progress in areas such as biofuels and carbon capture, which is expected to drive the transformation of its energy business.

Recently, Chevron CEO Michael Worth said in a statement that the company plans to focus on reducing the carbon intensity of its operations, with the goal of leading low-carbon intensity oil, products and natural gas, and launching new measures to reduce carbon emissions in key industries. products and solutions.

Goldman Sachs believes that Chevron is less attractive than Exxon Mobil for the following reasons:

“We maintain our Neutral rating on Chevron following the Q1 2022 earnings release. As discussed earlier, although we maintain a bullish view on energy stocks and confirm that the U.S. focus is on energy stocks , but we believe Exxon, which is rated a Buy, is a more attractive value, with a total return of 26%, compared to the 6% return of non-neutral-rated Chevron .

In addition, we also emphasize that given Chevron’s less downstream business relative to ExxonMobil , Chevron’s global refining capacity is 1.8 million barrels per day compared to Exxon’s 4.6 million barrels, which is more refined. Constructive ; in addition to Chevron’s relatively low refining capacity, the company’s upstream projects have a small advantage over ExxonMobil, which offers attractive growth opportunities, such as in Guyana in the near term, And LNG projects including Golden Pass and Coral FLNG. “

This article is reprinted from: https://news.futunn.com/post/16006666?src=3&report_type=market&report_id=206923&futusource=news_headline_list
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