In this article, I have evaluated Exxon Mobil Corporation (XOM) and ChampionX Corporation (CHX) to determine which energy stock you should invest in. After comparing these stocks fundamentally, I think CHX can generate superior returns based on the factors discussed throughout this article.
Before comparing these stocks, let’s see what’s shaping the energy industry’s prospects.
Despite slower economic growth in nearly all major economies, the International Energy Agency (IEA) raised its oil demand growth forecasts for this year. OPEC projects oil demand to surge by 2.5 million barrels per day this year, potentially expanding by an additional 2.25 million bpd by 2024.
Also, oil prices have been volatile since Hamas launched its attack on Israel. World Bank also cautioned in a quarterly update that crude oil prices could rise to more than $150 a barrel if the conflict escalates.
In addition, oil prices are further affected by supply cuts by Saudi Arabia, Russia and other members of the OPEC+ group of oil-producing countries. They have pledged oil output cuts of about 5 million barrels per day, or about 5% of daily global demand, in a series of steps that started in late 2022.
XOM declined marginally over the past six months compared to CHX’s 7.4% gain. XOM also fell 5.7% year-to-date compared to CHX’s 1.5% returns.
Here are the reasons why I think CHX might perform better in the near term:
Recent Developments
On November 14, 2023, XOM started production today at Payara, Guyana’s third offshore oil development on the Stabroek Block, bringing total production capacity in Guyana to approximately 620,000 barrels per day.
Conversely, On November 10, 2023, CHX announced that it had declared a regular quarterly dividend of $0.085 per share on the company’s common stock, par value $0.01 per share, to be paid on January 26 2024.
Recent Financial Results
For the third quarter ended September 30, 2023, XOM’s total revenue and other income declined 19% year-over-year to $90.76 billion. Net income attributable to XOM declined 53.9% year-over-year to $9.07 billion and earnings per common share declined 52% year-over-year to $2.25.
On the contrary, CHX’s revenue for the fiscal third quarter ended September 30, 2023, rose 1.4% year-over-year to $939.78 million. Its adjusted EBITDA rose 14.1% year-over-year to $189.54 million. Adjusted EPS attributable to CHX increased 24.2% year-over-year to $0.41.
Past And Expected Financial Performance
Over the past year, XOM’s revenue declined at a 10.2% CAGR. Analysts expect XOM’s revenue to decline by 14.9% this year and 5.4% in the fourth quarter ending December 2023. Its EPS is expected to decline 33.5% this year and 35.4% in the current quarter (ending December 2023) and decline 20.1% in the next quarter ending March 2024.
Conversely, CHX’s revenue has increased at a CAGR of 4.4% over the past year. Its revenue is expected to increase 5.6% next year ending December 2024. Its EPS is expected to rise 35.7% this year, 2.4% in the current quarter ending December 2023, and 16% in the next quarter ending March 2024.
Valuation
XOM’s forward EV/EBITDA multiple of 5.88 is lower than CHX’s 8.13. Its CHX’s forward EV/Sales of 1.22x is lower than CHX’s 1.61x.
Profitability
XOM's trailing-12-month levered FCF margin of 5.90% is lower than CHX’s 13.05%. In addition, XOM’s trailing-12-month EBITDA margin of 17.74% is lower than CHX’s 19.42%.
Thus, CHX is more profitable.
POWR Ratings
XOM has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, CHX has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. XOM's D grade for Growth is in sync with its poor performance in the recent quarter. On the other hand, CHX's C grade for Growth is consistent with stable performance in the recent quarter.
Among the 85 stocks in the Energy - Oil & Gas industry, XOM is ranked #46, while CHX is ranked #7.
Beyond what we’ve stated above, we have also rated both stocks for Value, Stability, Sentiment, and Quality. Get all XOM ratings here. Click here to view CHX ratings.
The Winner
The energy industry is expected to keep seeing substantial growth owing to rising oil prices and demand growth. Industry players such as XOM and CHX are well-positioned to benefit from these industry tailwinds.
However, CHX seems to be the better buy here, considering its higher margins and better growth prospects.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy - Oil & Gas industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CHX shares were trading at $29.41 per share on Thursday morning, up $0.10 (+0.34%). Year-to-date, CHX has gained 2.56%, versus a 20.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
The post Exxon Mobil Corp. (XOM) vs. ChampionX (CHX): Which Energy Stock Should You Invest In? appeared first on StockNews.com