A potential escalation of geopolitical tensions and fears of a supply shock arising out of OPEC+’s oil supply cuts through the first half of the year, and Russian refinery disruptions following Ukraine’s recent drone attacks have boosted crude oil prices lately. However, oil prices are showing signs of softness due to concerns over global demand.
Amid this uncertain backdrop, it could be wise to wait for an opportune entry point in Occidental Petroleum Corporation (OXY) and Exxon Mobil Corporation (XOM). Before diving deeper into the fundamentals of these stocks, let’s understand what’s leading to the uncertain outlook for oil.
As the war in Gaza continues to wage on, there are fresh tensions between Iran and Israel. Iran launched a missile and drone attack on Israel over the weekend in retaliation for Israel’s destruction of Iran’s consulate in Syria. While Israel has vowed to retaliate against Iran, Iran has pledged a tougher response in the event of an Israeli counterattack on its soil.
An escalation in conflicts between the two nations may disrupt crude oil supplies from the region, leading to higher prices. However, investors are betting that international intervention may lead to a de-escalation between the two warring nations. SEB Research commodities analyst Ole Hvalbye said that any new Western sanctions against Iran could be offset by greater output from other oil-producing nations.
Oil prices have been under pressure as U.S. commercial crude oil inventories rose by 2.7 million barrels to 460 million barrels in the week ending April 12. In addition, China, the world’s biggest oil importer, saw its economy grow faster than expected in the first quarter, but other indicators like retail sales, industry output, and property investment showed that domestic demand remained muted.
Moreover, uncertainty over when interest rates may be cut is increasing concerns about lower oil demand. The IEA lowered its 2024 oil demand growth forecast by 130,000 barrels per day to 1.2 million bpd due to weak OECD consumption and slump factory activity. On the other hand, OPEC forecasts world oil demand to increase by 2.25 million bpd in 2024 and by 1.85 million bpd in 2025.
Let’s examine the fundamentals of the two Energy – Oil & Gas stocks, beginning with the less favorable one from an investment point of view.
Stock #2: Occidental Petroleum Corporation (OXY)
OXY and its subsidiaries engage in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, and North Africa. They operate through three segments: Oil and Gas, Chemical, and Midstream and Marketing.
In terms of the trailing-12-month levered FCF margin, OXY’s 18.65% is 190.3% higher than the 6.42% industry average. Likewise, its 22.19% trailing-12-month Capex / Sales is 52.8% higher than the industry average of 14.53%. However, the stock’s 21.14% trailing-12-month EBIT margin is 5.9% lower than the industry average of 22.48%.
OXY’s total revenues and other income for the fourth quarter ended December 31, 2023, declined 9.6% year-over-year to $7.53 billion. Likewise, its total adjusted income attributable to common stockholders and adjusted EPS fell 55.6% and 54% over the prior-year quarter to $710 million and $0.74, respectively.
However, as of December 31, 2023, the stock’s total assets stood at $74 billion compared to $72.61 billion as of December 31, 2022.
Street expects OXY’s revenue for the quarter ending June 30, 2024, to increase 2.3% year-over-year to $6.89 billion. Its EPS for the quarter ended March 31, 2024, is expected to decrease 44.4% year-over-year to $0.61. Over the past six months, the stock has gained marginally to close the last trading session at $65.98.
OXY’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #68 out of 82 stocks in the Energy – Oil & Gas industry. It has a C grade for Momentum, Stability, and Quality. Click here to see the other ratings of OXY for Growth, Value, and Sentiment.
Stock #1: Exxon Mobil Corporation (XOM)
XOM engages in the exploration and production of crude oil and natural gas in the United States and internationally. It operates through Upstream, Energy Products, Chemical Products, and Specialty Products segments.
On April 12, 2024, XOM finalized plans for the Whiptail development offshore Guyana, expecting to increase daily oil capacity by 250,000 barrels by 2027, with a $12.7 billion investment in Guyana's economy.
In terms of the trailing-12-month levered FCF margin, XOM’s 7.62% is 18.6% higher than the 6.42% industry average. Likewise, its 12.42% trailing-12-month Return on Total Capital is 47.9% higher than the industry average of 8.40%. On the other hand, the stock’s 6.48% trailing-12-month Capex / Sales is 55.4% lower than the industry average of 14.53%.
For the fiscal fourth quarter ended December 31, 2023, XOM’s total revenues and other income decreased 11.6% year-over-year to $84.34 billion. Its non-GAAP earnings, excluding identified items, fell 32.3% over the prior-year quarter to $9.52 billion. Also, its non-GAAP earnings, excluding identified items per common share, stood at $2.48, representing a decline of 27.1% year-over-year.
On the other hand, as of December 31, 2023, the stock’s total assets stood at $376.32 billion compared to $369.07 billion as of December 31, 2022.
Analysts expect XOM’s EPS for the quarter ending June 30, 2024, to increase 22.9% year-over-year to $2.38. Its revenue for the quarter ended March 31, 2024, is expected to decrease 6.6% year-over-year to $80.88 billion. XOM’s stock has gained 18.7% year-to-date to close the last trading session at $118.63.
XOM’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Growth, Stability, and Sentiment. It is ranked #34 in the same industry. To see XOM’s Value, Momentum, and Quality ratings, click here.
What To Do Next?
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XOM shares were trading at $118.74 per share on Thursday afternoon, up $0.11 (+0.09%). Year-to-date, XOM has gained 19.87%, versus a 6.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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