Anyone that has been to the gas pumps lately is well aware of the depressed prices in the oil and gas markets. Big Oil, notably Exxon Mobil Corp. (XOM – Free Exxon Stock Report) and Chevron Corp. (CVX – Free Chevron Stock Report), have felt the effects of this phenomenon for several months. These two Dow-30 components are behemoths in this field and have had a hard time gaining any positive traction of late, as is evident by their recent stock quotations. A side-by-side comparison may be needed to see which one is truly the best investment at the moment, but make no mistake, we think long-term investors should be looking at both these blue chips for possible additions to any portfolios.
The first thing that draws our attention is the massive size of each company. A look at the Capital Structure Box in the left center of the page tells us that the respective market caps of XOM and CVX are north of $325 billion and $160 billion. (We will be using the reports dated December 4, 2015 for this article.) Even though both equities are currently trading in the $80 range, Exxon has more than twice as many shares outstanding.
Just below the Top Label, we find Historical Prices, which show exactly how high/low these stocks have traded over the course of each year of the past decade. Chevron peaked just over $135 a share in mid-2014, while Exxon’s apex was $104.80 at roughly the same time. In fact, looking at the Price Chart, the direct correlation these issues have with one another is obvious. Yes, individual performance has prompted moves away from one another. But for the most part, the graphs appear to be virtually identical dating back to the most recent recession in 2007-2009. On the basis of price appreciation potential, CVX may have more room to run once oil/gas prices return to more historic norms. This sentiment is echoed in our 3- to 5-year Target Price Ranges, located at the top left of the page; Exxon’s high end is $120 versus Chevron’s $150.
But one cannot get caught up on price alone. Numerous other factors alongside the price need to be considered. Many pundits head straight for the Price-To-Earnings Ratio (located in the Top Label) when comparing one investment to another. This figure is located at the top of our page in the very middle, to the right of the Recent Price. The earnings multiple most will use will be the 12-month figure through the end of 2016. Our current calls are for Exxon to earn $4.25 a share in 2016, while Chevron’s expectation is significantly higher at $6.80. The math leads to a P/E ratio for Exxon that is above 20x, and closer to 16x for Chevron. The metrics suggest neither of these stocks are cheap per se. Our P/E multiples out to decade’s end for these oil titans are 12 for Exxon and 10 for CVX. Therefore, while it is true that both stocks have been beaten down of late, they are both far from their bottoms. For a bit of perspective, Exxon was as low as $66.60 in late 2015, while Chevron dipped just below $70 at around the same time. So from a P/E standpoint, CVX also gets the nod. One last note here, both entities have been selling off assets during the upstream downturn and Chevron’s downstream earnings have been giving it a leg up as far as earnings growth goes. As analyst Robert Mitkowski states, “more than half of Exxon’s 2015 profits are from refining and chemicals”. This is helping to somewhat offset the dark period for the pumping division. Just a year earlier, the oil division had accounted for 80% of EPS.
As far as finances go, there is really no true distinctive indicator between these two companies that would put one ahead of the other. Both are in excellent financial form. The Financial Strength Rating is located at the bottom right-hand corner of the page. Both Exxon and Chevron have our highest grade of A++. Moreover, both have ample cash on hand to make the moves necessary to weather the storm. Too, each companies’ dividend is well supported and yielding a percentage handsomely above the Value Line median. Still, those seeking the max in terms of current income will note that Chevron’s yield currently approaches 5% and is slightly more than one percentage point above Exxon’s. With that in mind, CVX scores another point in the head-to-head battle. Also, in his Commentary, analyst Jeremy Butler points out that “Chevron’s cash flow should be aided further by the Australian liquid natural gas projects that will be up and running over the next 18 months”. Still, by 2020, the payout should even out around the 4% mark, which still paces it above XOM’s projected yield of 3.0%.
Next, we take a look at the revenues for each company. The Quarterly Sales Box is above the earnings box on the lower left-hand side of the Value Line page. Exxon is expected to post revenues for 2016 of $255 billion. Chevron’s tally is pegged to come in at $165.6 billion. Chevron’s peak revenues were during 2008 at $273 billion, whereas Exxon topped out at $433 billion in 2011. Again, both companies are massive in terms of scale, but Exxon is clearly even larger than its sizable competitor. Both businesses are far-reaching and engaged in numerous aspects of the oil/gas world. Yet, Exxon seems to be the more mature company at this juncture, which could leave Chevron primed to be the better growth play.
In summation, we do not think investors can go wrong either way here. However, if we had to choose at present, we would go with Chevron for its somewhat better growth and income traits. Regardless of which issue is chosen, it is likely that investors will be at the mercy of the oil/gas market in the near term, and perhaps for even longer given some recent macroeconomic developments. With that in mind, the risk conscious may want to just drive past these pumps and look for another destination on the road to capital appreciation.