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3 Reasons Why Chevron is a Better Big-Oil Stock Than ExxonMobil

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The price of West Texas Intermediate crude has touched the $70-per-barrel mark again, highlighting a substantial improvement from the negative territory hit last April. The massive crude recovery has been driven by the rapid and widespread rollout of coronavirus vaccines. Banking on the favorable commodity price, energy businesses are gradually making a comeback.

Considering this favorable macro backdrop, its again time for investors to allocate money toward integrated energy giants. As it is, their businesses are diversified and therefore relatively insulated from extreme market volatility. In this write-up, let’s look at Exxon Mobil Corporation XOM and Chevron Corporation CVX – two entities dominating the energy sector.   

ExxonMobil and Chevron are among the leading integrated energy players, with a strong presence in upstream and downstream operations. Both the companies are dividend aristocrats. A major plus for Chevron is its low-cost projects in the Permian basin. Meanwhile, ExxonMobil’s growth story is centered around its presence in Permian and Guyana resources.

Investors looking to compare the two biggies should analyze a few key factors.

Chevron’s Edge Over ExxonMobil

Chevron has an advantageous position over ExxonMobil based on three prime factors.

Dividend Payout

On Apr 28, 2021, Chevron increased its quarterly dividend payout by approximately 4% to make 2021 the 34th successive year of an annual per share dividend payout hike.

ExxonMobil’s story is a bit different. The last time the company hiked payout was in 2019 when it increased its second-quarter dividend. Interestingly, despite no dividend hike last year, the company’s annual dividend of $3.48 per share for 2020 was higher than $3.43 in 2019. Thus, the company has preserved its 38-year streak of dividend increases. However, if ExxonMobil decides not to raise its fourth-quarter 2021 dividend payout, the company will no longer be a dividend aristocrat.

Energy Acquisition

On Oct 5, 2020, Chevron completed the acquisition of Noble Energy, Inc. Though this was an all-stock takeover, Chevron assumed Noble’s hefty debt load. Despite assuming all of the debt load, Chevron’s balance sheet is slightly more levered than that of ExxonMobil. Thus, with a marginally higher debt to capitalization of 24.3% as compared to ExxonMobil’s 21.5%, Chevron utilized the low oil pricing environment last year to complete the acquisition and broaden its footprint in the DJ Basin of Colorado and Permian Basin. The move has also given Chevron an advantageous position in the cost front, with annual cost savings of $300 million, per company estimates.

In the Permian, Noble Energy had roughly 92,000 acres. Thus, the acquisition also reflects Chevron’s strong focus on the Permian that could ramp up its oil production in the long run.

Capital Discipline

Under its strong management, Chevron has been demonstrating excellent capital spending discipline, thereby generating handsome cashflow. This allows the company, which roots back to 1879, to consistently return cash to shareholders. As compared to energy majors like BP plc BP, Royal Dutch Shell plc (RDS.A) and ExxonMobil, Chevron’s capital spending program is more conservative

In comparison, ExxonMobil's above-average capital spending program has got investors concerned. This is reflected in the company’s stock price underperformance in comparison to the broader energy sector over the past five years.

Last Words

It is clear that despite being the smaller company, Chevron is a better big-oil stock than ExxonMobil. In case of the Zacks Rank as well, Chevron has a clear lead with a Zacks Rank #2 (Buy) versus ExxonMobil’s Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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BP p.l.c. (BP) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
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