Is Chevron A Better Integrated Oil Major Pick Over Exxon Mobil?

We believe that Chevron Corporation (NYSE: CVX) is a better pick than its industry peer – Exxon Mobil (NYSE: XOM). CVX stock trades at a slightly higher multiple of 1.5x sales, versus almost 1.3x revenues for XOM – and we think this valuation gap will likely expand further over the coming years in favor of CVX. There is more to the comparison, and in the sections below, we discuss why we think CVX will outperform XOM in the next three years. In this analysis, we compare a slew of factors, such as historical revenue growth, returns, and valuation. Our dashboard XOM vs CVX: Industry Peers: Which Stock Is A Better Bet? has more details on this.

1. XOM Stock Has Fared Better In The Last Three Years

XOM stock has seen extremely strong gains of 190% from levels of $40 in early January 2021 to around $115 now, vs. gains of 90% from levels of $85 in early January 2021 to around $158 now for CVX stock. In comparison, the broader S&P500 has increased about 50% over this roughly 3-year period. However, the increase in these stocks has been far from consistent. Returns for XOM stock were 48% in 2021, 80% in 2022, and -9% in 2023, while CVX stock saw returns of 39%, 53%, and -17% over these years, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that both energy stocks outperformed S&P in 2021 and 2022 but underperformed in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could XOM and CVX face a similar situation as they did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

2. CVX Has Seen Better Revenue Growth in Last 3 Years

CVX’s Revenues rose at an average annual rate of 27.4% from $94.5 billion in 2020 to $196.9 billion in 2023, while XOM’s Revenues grew at an average rate of 23.0% from $178.5 billion to $334.6 billion in 2023 over the same period. Both companies saw similar revenue growth in the last twelve months. It should be noted that we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income for both XOM and CVX.

Overall, Brent crude oil is at $83 (at the time of writing), and we believe that rebounding demand and tight supplies will sustain these oil prices through the end of the year. Both companies boast that a strong balance sheet will likely pave the way for longer-term gains.  CVX and XOM are amongst the lowest-cost producers and generate more of their revenue, collectively, from their midstream (transmission pipelines) and downstream operations (chemical and refineries) than it does from drilling – safeguarding them from scenarios when oil prices fall back.

Both companies are entangled in concerns surrounding the pending $53 billion Chevron acquisition of Hess. Upon closing of the deal, Chevron will acquire 465,000 acres in the Bakken Shale, and will add substantial oil-equivalent production to its already expansive portfolio in Guyana. However, there’s a major roadblock. Hess and Exxon are partners in a large energy project in Guyana, and XOM believes it has the right to buy Hess out of the project if it sells itself to Chevron. That project is likely one of the main reasons why Chevron wants to buy Hess, so this could rush the Hess acquisition or, at the very least, make it a less desirable purchase. CVX shares are facing the brunt of this uncertainty because of the doubts around what is a very large acquisition. CVX stock is up 6% year-to-date, compared to 15% growth in XOM stock.

3. XOM Is More Profitable And Has a Better Cash Cushion

XOM’s operating margin of 14.2% in 2023 grew from 7.8% in 2019, while CVX’s operating margin expanded marginally from 4.0% to 13.3% over this period. Looking at the last twelve-month margin change compared to last 3 years operating margin, XOM’s 0.7% fares better than –0.2% for CVX.

Looking at financial risk, both companies are comparable. Chevron’s 0.2% debt as a percentage of equity is lower than 0.9% for Exxon Mobil. However, its 5% cash as a percentage of assets is lower than 9% for XOM, implying that CVX has a better debt position but XOM has more cash cushion.

4. The Net of It All

We see that Exxon Mobil is more profitable and has a better cash cushion. On the other hand, Chevron has seen better revenue growth in the last four years and has a better debt position. Despite XOM’s stellar 180% rise in the last three years, CVX remains a better pick over XOM. Using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe CVX is currently the better choice of the two. The table below summarizes our revenue and return expectation for CVX and XOM over the next three years, and points to an expected return of 2% for CVX over this period vs. a -5% expected return for XOM. We estimate CVX’s Valuation to be $173 per share, based on $12.75 expected EPS and a 13.6x P/E multiple for the fiscal year 2024 – almost 10% higher than the current market. On the other hand, we estimate XOM’s Valuation to be $112 per share, almost in line with the current price. Our forecast is based on an 8.5x P/E multiple for XOM and expected earnings of $13.20 on a per-share basis for the full year 2024.

While CVX may outperform XOM in the next three years, it is helpful to see how Exxon Mobil’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/16/2024
[2] Cumulative total returns since the end of 2016

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