XOM received the Government approvals and has decided to proceed with its investment in the Payara field in Guyana. Payara, which is the third project in the Stabroek Block, is expected to produce up to 220,000 barrels of oil per day after starting in 2024. XOM’s first offshore Guyana project, Liza Phase 1, began producing in late 2019.

Following twelve months of technical evaluation, XOM and Global Thermostat expanded their joint agreement. Direct air capture technology seems promising and is expected to remove carbon dioxide from the atmosphere. XOM signed an agreement with Global Clean Energy Holdings in August to purchase 2.5 million barrels of renewable diesel per year for five years from a converted California refinery starting in 2022.

But which of these stocks is a better pick now? Let’s find out.

Latest Movements

XOM received the Government approvals and has decided to proceed with its investment in the Payara field in Guyana. Payara, which is the third project in the Stabroek Block, is expected to produce up to 220,000 barrels of oil per day after starting in 2024. XOM’s first offshore Guyana project, Liza Phase 1, began producing in late 2019.

Following twelve months of technical evaluation, XOM and Global Thermostat expanded their joint agreement. Direct air capture technology seems promising and is expected to remove carbon dioxide from the atmosphere. XOM signed an agreement with Global Clean Energy Holdings in August to purchase 2.5 million barrels of renewable diesel per year for five years from a converted California refinery starting in 2022.

CVX completed its acquisition of Noble Energy Inc. (NBL - Get Rating) last month following the approval by Noble Energy shareholders. NBL’s high-quality assets complement CVX’s advantaged upstream portfolio. Jon Huntsman Jr. was re-elected to CVX’s board of directors, effective September 15th.

CVX invested in Zap Energy Inc., a Seattle based Nuclear Fusion Start-up. This provides the company an opportunity to enhance the company’s focus on a diverse portfolio of low-carbon energy resources with the capacity to provide communities across the globe access to affordable, reliable, and ever-cleaner energy. Earlier this year, CVX completed its acquisition of Puma Energy (Australia) Holdings Pty Ltd.

Recent Financial Results

XOM’s net production of crude oil, natural gas liquids, bitumen, and synthetic oil from the United States increased bya  5.8% year-over-year to 692 kbd for the third quarter ended September 2020. Oil equivalent production increased 1% sequentially to 3,672 kbd. The refinery throughput increased by 6.9% sequentially to 3,759 kbd. Petroleum product sales increased by 13.2% sequentially to 5,023 kbd. Chemical prime product sales increased by 2.3% year-over-year to 6,624 kt.

CVX’s net liquids production from the United States increased by 0.7% year-over-year to 731 MB/D for the third quarter ended September 2020. Net Natural Gas production from the United States increased by 21.2% year-over-year to 1,507 MMCF/D. Total net oil-equivalent production from the United States increased by 5.1% year-over-year to 982 MB/D.

Expected Financial Performance

Analysts expect XOM’s revenue to increase 21.2% next year. The company’s EPS is expected to grow 420% next year.

On the other hand, analysts expect CVX’s revenue to increase by 22.9% next year. The company’s EPS is expected to grow 2291.7% next year.

Thus, CVX has an edge over XOM here.

Profitability

XOM’s trailing-12-month revenue is 1.88 times what CVX generates. However, CVX is more profitable with a gross margin of 45.5% versus XOM’s 31.4%.

Moreover, CVX’s EBITDA margin of 15.1% compares favorably with XOM’s 10%.

Valuation

In terms of trailing 12-month price/sales, CVX is currently trading at 1.59x, slightly more expensive than XOM which is currently trading at 0.83x. Moreover, CVX is more expensive in terms of EV/Sales (1.91x versus 1.17x).

In terms of trailing-12-month price/cash flow as well, CVX’s 12.24x is 29.1% higher than XOM’s 9.48x.

Though CVX looks expensive compared to XOM, it’s worth paying this premium considering CVX’s significantly higher earnings growth potential.

POWR Ratings

While XOM is rated “Sell” in our proprietary POWR Ratings system, CVX is rated “Neutral”. Here’s how the four components of overall POWR Rating are graded for both these stocks:

XOM has a “D” for Trade Grade, Buy & Hold Grade, a  and Industry Rank, and a “C” for Peer Grade. It is currently ranked #20 out of 97 stocks in the Energy – Oil & Gas industry.

CVX has an “A” for Peer Grade, a “C” for Trade Grade and Buy & Hold Grade, and a “D” for Industry Rank. It is currently ranked #7 in the same industry.

The Winner

Both XOM and CVX are good investment bets considering their market dominance and continued expansion. However, CVX appears to be a better choice despite trading at a marginally higher valuation based on its higher earnings growth potential. It’s better to wait for an appropriate entry point though. 

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XOM shares were trading at $38.29 per share on Tuesday afternoon, up $0.13 (+0.34%). Year-to-date, XOM has declined -40.75%, versus a 13.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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