Oil and gas giants Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) will release their third-quarter results on October 27. With rising supply concerns due to the Israel-Hamas war and growing energy demand, oil prices will likely increase. The results of XOM and CVX can help gauge how these companies can navigate the potential oil market dynamics.
It may not be wise to invest in XOM and CVX before their upcoming earnings releases for reasons discussed throughout this article. However, it might be prudent to consider including these stocks on your watchlist in anticipation of appealing entry opportunities.
For the third quarter ended September 30, 2023, XOM’s EPS and revenue are expected to decline 47% and 17.4% year-over-year to $2.36 and $92.57 billion, respectively. Similarly, CVX’s EPS and revenue for the third quarter ended September 30, 2023, are expected to decline 33.6% and 20.5% year-over-year to $3.69 and $53 billion, respectively.
Crude oil prices had climbed above $100 per barrel last year due to worries over the lack of supply caused by the war between Ukraine and Russia. Oil and gas companies flourished as they raked in record earnings. After cooling during the early part of the year, oil prices have risen lately, crossing $90 a barrel for the first time since November 2022.
Crude oil prices rose amid concerns of tighter supply, sustained production cuts by OPEC+ and Russia, and indications of a tighter market. Although oil prices are trading below $90, the Israel-Hamas conflict and consistently rising global energy demand could potentially send the prices above $90 again.
TD Asset Management Head of Asset Allocation Michael Craig said, “The conflict between Israel and Hamas is adding more uncertainty to markets already grappling with higher geopolitical risk and rising volatility. I think oil, in general, will trade with a bit of a premium now because we have some degree of uncertainty now about what might transpire from here.”
“It might be a localized war, or it might draw in other actors. And then, that way, you could actually see a real material move in oil much higher,” he added. TD believes that oil prices could touch $120 to $130 and even reach $150 per barrel if the conflict spills over to the other countries and they become a part of the war.
In its 2023 World Oil Outlook, OPEC expects world demand for oil to reach 116 million barrels per day by 2045, roughly 6 million more barrels per day than what it had predicted last year. OPEC believes that the crude sector would require investments of $1.4 trillion to meet this huge long-term demand for oil.
However, the International Energy Agency (IEA) has a different opinion on when global crude demand will reach a peak. The IEA predicts that peak oil demand will be reached by 2030.
XOM and CVX have been in acquisition mode lately, having acquired Pioneer Natural Resources and Hess, respectively. This consolidation within the industry is seen as an effort to secure oil and gas supplies for the long term, given the projected rise in demand despite the transition to cleaner energy sources.
Given the overall uncertainty around the industry’s long-term prospects, let’s examine the fundamentals of the two stocks from the Energy – Oil & Gas industry, starting with the one ranked lower from the investment point of view.
Stock #2: Exxon Mobil Corporation (XOM)
XOM engages in the exploration and production of crude oil and natural gas. It operates through Upstream, Energy, Chemical, and Specialty Products segments. The company is involved in manufacturing, trade, transporting, and selling crude oil, natural gas, petroleum products, petrochemicals, and other specialty products and pursuing lower-emission business opportunities, including carbon capture and storage.
On October 11, 2023, XOM and Pioneer Natural Resources jointly announced a definitive agreement for XOM to acquire Pioneer. The merger would transform XOM’s upstream portfolio by more than doubling the company’s Permian footprint and creating the industry-leading high-quality undeveloped U.S. unconventional inventory position.
XOM’s Chairman and CEO Darren Woods said, “Pioneer is a clear leader in the Permian with a unique asset base and people with deep industry knowledge. The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis.”
On July 13, 2023, XOM announced an agreement to acquire Denbury Inc. XOM’s Chairman and CEO Darren Woods said, “Acquiring Denbury reflects our determination to profitably grow our Low Carbon Solutions business by serving a range of hard-to-decarbonize industries with a comprehensive carbon capture and sequestration offering.”
“The breadth of Denbury’s network, when added to ExxonMobil’s decades of experience and capabilities in carbon capture, utilization and storage (CCS), gives us the opportunity to play an even greater role in a thoughtful energy transition, as we continue to deliver on our commitment to provide the world with the vital energy and products it needs,” he added.
In terms of the trailing-12-month levered FCF margin, XOM’s 8.70% is 39.6% higher than the 6.23% industry average. Likewise, its 27.48% trailing-12-month Return on Common Equity is 28.8% higher than the industry average of 21.34%. Furthermore, the stock’s 1.01x trailing-12-month asset turnover ratio is 64.9% higher than the industry average of 0.61x.
On the other hand, XOM’s 34.38% trailing-12-month gross profit margin is 27.9% lower than the 47.66% industry average. Likewise, its 14.06% trailing-12-month net income margin is 0.9% lower than the 14.19% industry average. Furthermore, the stock’s 5.82% trailing-12-month Capex/Sales is 56.7% lower than the industry average of 13.45%.
XOM’s total revenues and other income for the second quarter ended June 30, 2023, declined 28.3% year-over-year to $82.91 billion. Its non-GAAP earnings, excluding identified items, decreased 55.1% over the prior-year quarter to $7.87 billion. Also, its non-GAAP earnings, excluding identified items per common share, stood at $1.94, representing a decline of 53.1% year-over-year.
It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 2.8% to close the last trading session at $108.59.
XOM’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a C grade for Stability and Sentiment. Within the Energy – Oil & Gas industry, it is ranked #39 out of 86 stocks. Click here to see the other ratings of XOM for Growth, Value, Momentum, and Quality.
Stock #1: Chevron Corporation (CVX)
CVX engages in integrated energy and chemical operations. The company operates in two segments: Upstream and Downstream.
On October 23, 2023, CVX announced its entry into an agreement with Hess Corporation (HES). The acquisition upgrades and diversifies CVX’s portfolio. The Stabroek block in Guyana is expected to grow production, and Hess’ Bakken assets will add another U.S. shale position to CVX’s DJ and Permian basin operations.
On August 7, 2023, CVX announced its acquisition of PDC Energy, Inc. The acquisition includes assets of 275,000 net acres in the Denver-Julesburg (DJ) Basin adjacent to CVX’s existing operations, adding more than 1 billion barrels of oil equivalent proved reserves and 25,000 net acres in the Permian Basin held by production.
In terms of the trailing-12-month Return on Total Assets, CVX’s 11.98% is 44.7% higher than the 8.28% industry average. Likewise, its 0.84x trailing-12-month asset turnover ratio is 38% higher than the industry average of 0.61x. Furthermore, the stock’s 10.90% trailing-12-month levered FCF margin is 75% higher than the industry average of 6.23%.
On the other hand, CVX’s 16.99% trailing-12-month EBIT margin is 30% lower than the 24.27% industry average. Likewise, its 14.05% trailing-12-month net income margin is 0.9% lower than the 14.19% industry average. Furthermore, the stock’s 24.04% trailing-12-month EBITDA margin is 39.4% lower than the industry average of 39.65%.
For the fiscal second quarter ended June 30, 2023, CVX’s total revenues and other income declined 28.9% year-over-year to $48.90 billion. Its adjusted earnings fell 49.2% over the prior-year quarter to $5.78 billion. Its adjusted EPS came in at $3.08, representing a decline of 47.1% year-over-year. On the other hand, its total costs and other deductions declined 22.2% year-over-year to $41.06 billion.
It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has declined 10.9% to close the last trading session at $155.87.
CVX’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, translating to Neutral in our proprietary rating system.
It has a C grade for Stability and Sentiment. It is ranked #32 in the same industry. To see the other ratings of CVX for Growth, Value, Momentum, and Quality, click here.
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XOM shares were trading at $107.20 per share on Thursday afternoon, down $1.39 (-1.28%). Year-to-date, XOM has declined -0.40%, versus a 9.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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