The war in Iran and rising oil prices are driving up pump prices. The problem is that oil is an important part of transportation, production, and other important parts of the economy; it helps keep everything moving.
While unfair, it certainly raises the question about energy stocks and whether now is the right time to rotate. And when investors look for big names in the industry, Exxon Mobil and Chevron are often at the top of the list. Both are oil giants, but their approach is somewhat different. But how is it different, exactly? And how does that difference make the stock a better choice for income investors?
Let’s find out.
First is Exxon Mobil, the larger of the two companies. It operates in oil production, refining, and chemicals, giving it one of the strongest positions in the energy market. With a market cap of $656 billion, it is one of the largest energy companies in the world.
ExxonMobil stock trades around $158, and is up about 37% year to date.
Second is Chevron, which is about half the size of its competitors, but still one of the best-known names in the industry. Like Exxon Mobil, it operates in oil and gas production and refining. With a market cap of $396 billion, Chevron remains the world’s largest energy company.
Chevron stock is trading around $201, and is up about 32% year to date.
Exxon makes money by producing oil and gas, refining crude into fuel and other products, and selling petrochemicals. It has a large presence in the power chain, which makes its position balanced. So, in short, Exxon produces, processes, and sells oil-based products.
Meanwhile, Chevron is very similar, but with a different emphasis. It also produces oil and gas and operates in refining, but its business is generally more focused on manufacturing than Exxon’s. This difference gives Chevron a somewhat easier setup while also tying it closer to the ups and downs of oil and gas prices.
Simply put, Exxon looks more balanced across the energy spectrum, while Chevron is closer to manufacturing.
Here’s what the numbers look like based on their latest financial reports:
|
Metric (Latest Quarter) |
Exxon Mobil |
Chevron |
|
Selling |
$82.3 billion |
$46.9 billion |
|
Net income |
$6.5 billion |
$2.8 billion |
|
Operating Cash Flow |
$52.0 billion |
$33.9 billion |
|
Transfer Price/Earnings (P/E) |
22.54 |
27.32 |
right now, last quarterwe can see Exxon has more sales, up to $82.3 billion, ahead of Chevron’s $46.9 billion. Not only that, but total revenue is higher for Exxon at $6.5 billion compared to Chevron’s $2.8 billion.
Cash flow tells a similar story. Operating cash flow, a metric that tells how much money a company makes from its core operations, favors Exxon at about $52 billion, compared to Chevron’s $33.9 billion.
Now let’s talk about measurement. The price-to-earnings ratio, or P/E, compares a company’s stock price to its earnings, helping investors decide whether a stock is expensive, cheap, or reasonably priced. The lower is usually the better, but it only means something relative to the wider field.
The energy sector has an average forward P/E of about 16. As a result, both stocks look expensive based on that metric, although Exxon looks a little cheaper than Chevron. This is likely because investors are willing to pay a premium now, expecting strong performance going forward.
Overall, if you’re looking for a better value play between the two, Exxon seems like the better buy because it has a lower P/E ratio and stronger results across sales, earnings, and cash flow.
For cash-focused investors, this is what you might expect.
The Exxon company paid a dividend of $4.12 per share last time and the annual yield was 2.6%. It has a dividend payout ratio of 56%, which means it only pays out 56% of its profits to shareholders. The company has increased dividends for 43 consecutive years, and payouts have increased 15% over the past five years.
Meanwhile, Chevron pays $7.12 a year, which translates to a yield of about 3.5%. That’s about 1% higher than Exxon. Chevron has also increased its dividend for 39 consecutive years and boasts a 5-year high of 33%. However, all this comes with a stellar high dividend payout ratio of 95%.
Based on dividend data, I’m leaning heavily on Exxon as it has a lot of room to raise its dividend in the future. Yields and growth are low, yes, but the company has plenty of headroom to continue and grow its dividends reliably.
So, how does Wall Street rate these stocks?
Consensus among 28 analysts rates Exxon a Moderate Buy” with an average score of 3.89 out of 5. The $186 high price target suggests up to 18% potential upside.
On the other hand, the consensus of the same number of analysts rates Chevron as “Average Buy,” with a high average of 4.04 points. The high target price of $242 suggests 20% potential.
When all is said and done, both Exxon and Chevron look like strong picks in the energy sector. And frankly, the best stock depends on what’s most important to you.
Exxon stands out for its large scale, strong financial results, and better ability to grow its dividends in the future. It also has a broad business mix, giving it a balanced setup across the different segments of the energy market. Meanwhile, Chevron may look better to investors who put a large premium on high earnings today, at the cost of reducing dividend growth in the future.
As of the date of publication, Rick Orford did not have (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
