Among the major integrated energy firms, ExxonMobil Corporation XOM and Chevron Corporation CVX deserve a special mention, since they have such massive market caps of $351.4 billion and $222.6 billion, respectively. Thus, these companies dominate and define the Zacks Oil International industry.
These energy majors have a strong earnings surprise history, as they have managed to surpass the Zacks Consensus Estimate for earnings in three of the last four quarters. And, Exxon and Cevron have an average positive earnings surprise of 8.8% and 1.8%, respectively.
During the third quarter of 2017, ExxonMobil’s revenues of $66.165 billion beat the Zacks Consensus Estimate of $63.508 billion. Moreover, earnings of 93 cents surpassed the Zacks Consensus Estimate of 89 cents.
Chevron’s third-quarter performance has also been impressive. Revenues of $36.205 billion steered past the Zacks Consensus Estimate of $33.667 billion. On top of that, earnings of $1.03 per share surpassed the consensus mark of 99 cents.
Although both the stocks are attractive picks for investors based on their earnings reports, our research shows ExxonMobil is a better choice than Chevron.
We have employed three parameters for an in-depth comparative analysis.
Strong Potential to Generate Cash Flow
Investors look for indicators that gauge the ability of a company to generate free cash flow from investments. For this purpose, we have employed the free cash flow yield ratio. Companies with strong operations generally have high free cash flow yield, indicating that the amount of money investors are generating is more than the amount spent to buy the stock.
Our proprietary model shows that free cash flow yield for ExxonMobil stands at 4.4%, way higher than 1.9% for Chevron.
Sufficient Funds to Meet Capital Expenditure
We calculate a company’s free cash flow after deducting capital spending from operating cash flow. Over the last four quarters, free cash flow for ExxonMobil came in at $15.263 billion, indicating that the firm has sufficient cash flow to fund capital spending. In other words, ExxonMobil generated $30.051 billion in net cash from core operations, while its capital spending amounted $14.788 billion.
Chevron’s free cash flow of $4.376 billion is considerably lower than that of ExxonMobil. This signifies that the possibility of Chevron to rely on debt for financing future operations is significantly higher than ExxonMobil.
Healthy Balance Sheet
From a comparative study of the debt-to-capitalization ratio, it is clear that ExxonMobil has significantly less reliance on debt than Chevron. The debt-to-capitalization ratio of ExxonMobil presently stands at 11.6% against 23% for Chevron.
ExxonMobil also has lower long-term debt despite it being 1.6 times bigger taking into consideration its market capitalization. The company’s long-term debt load, as of Sept 30, stands at $24.869 billion, much lower than $34.075 billion for Chevron. Also, ExxonMobil’s long-term debt is substantially lower than $56.893 billion for BP Plc BP and $79.681 billion for Royal Dutch Shell plc RDS.A.
Our comparative analysis shows that return from investment in ExxonMobil is way higher than Chevron. This is also reflected in ExxonMobil’s current Zacks Rank #1 (Strong Buy), which implies that the stock will significantly outperform the broader U.S. equity market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Meanwhile, Chevron carries a Zacks Rank #3 (Hold), signifying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
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BP p.l.c. (BP) : Free Stock Analysis Report
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Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
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