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ExxonMobil or Chevron: Which Stock Will Gain Big in 2021?

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Nilanjan Banerjee
·4 min read
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The coronavirus pandemic has severely dented global energy demand since countries around the world are practicing strict social-distancing measures to curb the spread of the virus. This has led the price of crude oil to plunge, leading many energy firms to follow stringent measures that include layoffs and cutting dividend payments. While small oil companies are at greater risks to survive the pandemic, big energy names like Exxon Mobil Corporation XOM and Chevron Corporation CVX are now on the watch list of energy investors.

Vaccine Can’t Ease Energy

Although the price of West Texas Intermediate crude has gained massively in the past several months, the price of the commodity, at around $47 per barrel, has declined significantly if compared with the 2020-beginning price of more than $60. Now, with the vaccine being rolled out in the United States, raising hopes for an economic rebound within the first half of next year, many analysts opine that oil price might see a significant recovery once millions of Americans get inoculated.

However, vaccines are unlikely to eradicate all the pains that oil energy companies are currently suffering. With oil explorers gradually returning to domestic shale plays to capitalize on the partial crude price recovery, there is always a possibility for the oil market to remain oversupplied amid soft demand, thereby acting as a dampener to the path of crude recovery.

Moreover, investors are building pressure on fossil fuel companies to tackle climate change, leading a shift toward low-carbon alternatives like solar, wind, geothermal, hydroelectric, and other sources of non-polluting energy. This is seen as a big threat to oil demand going forward. As alternative and renewable energy gain in popularity, a significant amount of oil consumption will be wiped out, hurting demand for fossil fuel and limiting crude price recovery. Thus, even if a vaccine puts an end to the pandemic, oil price is unlikely to spring back to pre-pandemic levels.

Time to Focus on Big Energy Names

With the possibility that oil price is unlikely to fully recover next year, small oil energy players are in a greater risk of bankruptcy. Thus, big energy names are in a much better position to combat the effects of the pandemic as size and diversification are their key strengths. Two big energy majors are ExxonMobil and Chevron,both carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Oil Giants Face Off: ExxonMobil vs Chevron

Significant operating strength along with diversified and large-scale operations has placed ExxonMobil ahead of many energy names. However, the leading integrated company is at higher risks of dividend cuts in 2021, as opined by many analysts. The company is now considering reviewing every quarter to judge the fuel demand scenario and then decide on adjusting dividend payments. This signifies that if the overall demand scenario remains relatively soft for a considerable time period, the company may even think of cutting dividend. It is to be noted that two big integrated energy firms that cut dividend amid the pandemic are BP plc BP and Royal Dutch Shell plc RDS.A.

Also, the net operating cashflow that ExxonMobil has been generating since 2019 is not sufficient to cover dividends, owing to counter-cyclical capital spending,and hence has relied on significant debt capital to reward stockholders. If this situation continues for long, the company will then have to compromise its balance sheet strength. In fact, ExxonMobil’s balance sheet, which is still strong, has been witnessing rising debt loads since the first half of 2019.

However, the picture is greener for Chevron. The large global integrated energy company has a conservative capital spending program in place, helping the firm continue to generate considerable cashflows. Moreover, Chevron’s balance sheet is among the strongest in the industry, with short-term debt load declining massively. Meanwhile, Chevron said that it would keep paying shareholders a quarterly dividend of $1.29 despite the difficult operating environment.

Last Words

It has been pretty clear that both the companies are witnessing the brunt of the coronavirus pandemic-induced low demand for energy products. Despite the scenario, Chevron is now in a much better place financially with almost no risk for trimming dividend payments, while ExxonMobil’s dividend outlook is at risk.

Zacks Top 10 Stocks for 2021

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