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Using a Value Line Report: Chevron vs. Exxon Mobil – December 20, 2013
For most well-diversified portfolios, including a big-name oil company is a given. Here, we compare and contrast two popular Dow members, Chevron (CVX - Free Chevron Stock Report) and Exxon Mobil (XOM - Free Exxon Stock Report), to see which of the oil giants is a better choice for investors looking to gain exposure to the Petroleum (Integrated) Industry.
Similarities and Differences
Chevron and Exxon Mobil are both part of the vast Petroleum (Integrated) Industry in the Value Line Investment Survey, though the latter is considered to be the leader of the group, with Chevron in fourth place. From the Business Blurb, which contains a brief business description of each company, among other details and background information, we can see both produce oil and natural gas. Daily production volumes in 2012 put XOM ahead of its smaller competitor, with 2.2 million barrels of “black gold” and 12.3 billion cubic feet of natural gas.
Glancing at the Price Charts, we note that price movements over the last 12 years for both stocks look generally similar, though Chevron displays a slightly steeper incline. Both are also highly profitable, as evidenced by the figures contained in the Quarterly Earnings Per Share box and in the Statistical Array. Note that profits are expected to retreat in 2013 and rebound in 2014 for both XOM and CVX, consistent with the views expressed by the covering analysts in the Commentary that refining margins, as well as oil prices (due to a greater global supply), which have been under pressure recently, should pick up in a few quarters.
In terms of valuation, the Price/Earnings and relative Price/Earnings ratios (located in the Top Label) of the two do not differ that much, though the numbers are somewhat higher for Exxon, meaning that, at its current price, XOM stock is a bit more expensive on a price-to-earnings basis, versus CVX. Still, the relative P/Es for these two companies indicate that they compare favorably to the median estimated P/E of all stocks under Value Line review, as the metric is less than 1.00 in both cases.
In the meantime, as shown by the dividend yield to the right side of the Top Label, both XOM and CVX pay dividends, with specific amounts seen in the Quarterly Dividends Paid box and Array. At 3.2%, Chevron’s yield clearly exceeds that of Exxon (2.7%), suggesting the equity offers a higher expected return from cash distributions over the coming 12 months than its much-larger Texas-based rival. Dividend growth rates for both Dow members appear to be reasonable and roughly on par with each other, at just below 10%, as exhibited in the Annual Rates box, which shows historical figures for the past decade and 5 years, along with estimated growth rates for the coming 3- to 5-year period.
The similarities don’t end there, however. Both companies’ finances are in tip-top shape, which make it possible to reward shareholders through dividends. In fact, each gets a superior grade of A++ for Financial Strength (see Ratings box). The two are flush with cash and have a very manageable level of long-term debt, as displayed in the Capital Structure and Current Position boxes.
Key risk metrics are virtually identical for both of these oil issues, and conservative players might well find these features quite alluring, including their top-notch Safety rank of 1 (in the Ranks box). The measure, which is based on a scale of 1 to 5, factors in Financial Strength and Stock Price Stability (also found in the Ratings box); like the former, the latter component is very similar for the two members, with each scoring 90 or above (out of a range of 100). The risk profiles make either of these blue chips most ideal for the risk-averse.
Not surprisingly, neither of these Dow stocks stand out from the crowd for year-ahead price performance relative to the broader market, as both carry a Timeliness rank (Ranks box) of 3 (Average) or below. So, momentum-seekers would do well to take a pass. On the surface, the issues might not pique the interest of those with a longer-term growth strategy either, since 3- to 5-year capital appreciation potential (represented by the gains in the Projections box) for the two seems generally modest, though XOM’s is slightly better.
Yet, when considering annual total return potential (also shown in the Projections box), the picture is somewhat different. Remember that this calculation takes into account the estimated price appreciation and prospective dividends to be paid over the approaching 3- to 5-year time frame. By this yardstick, Exxon Mobil comes out ahead of the underdog, with greater total return potential to offer, on a risk-adjusted basis.
This is not to say that both CVX and XOM don’t make suitable defensive plays for conservative, patient investors, with some income to boot. Indeed, analysts Jeremy Butler and Robert Mitkowski, Jr. echo these sentiments in the Commentary section. Picking one of these to include in a portfolio, therefore, could very well just depend on individual preference or bias of the investor, if not based on the strictest interpretation of the criteria outlined above.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.