It is no secret that oil prices are significantly lower than they were in mid-2014. Natural gas quotations have weakened since then, as well. This has hurt companies involved in upstream oil and gas, including Dow 30 components Exxon Mobil (XOM – Free Exxon Stock Report) and Chevron (CVX – Free Chevron Stock Report). However, since February of 2016, oil prices have risen, although the recovery has been choppy. The companies’ prospects have improved as well, but are not what they were just a few years ago.
Like other oil companies, Exxon Mobil and Chevron have cut their capital budgets and suspended certain projects in response to the decline in commodity prices. (They are still completing projects that began when oil prices were much higher, however.) Naturally, reduction of operating expenses has become critical, and the companies have made strides in this area. Sales of nonstrategic assets have occurred, as well.
A look at the reports of the two companies in The Value Line Investment Survey displays some similarities and some differences. The Price Chart shows that the quotation for each stock peaked in mid-2014, and declined as commodity prices weakened. This year, the prices of these blue chips have made a partial recovery along with oil prices, but have not returned to the mid-2014 level. The Statistical Array indicates that each oil giant has experienced a sizable decline in sales and profits, but Chevron’s has been more severe than that of Exxon Mobil. In fact, Chevron posted a loss in the first half of 2016. As stated in the Commentary section, impairment charges were partially responsible for the red ink. (Note that these charges are noncash items.) The Array indicates that we expect the bottom line for each company to be much improved in 2017, albeit well below the levels attained a few years ago.
Meanwhile, the Top Label tells investors that each stock has an above-average dividend yield, but the Quarterly Dividends box shows a difference between the two companies. Exxon Mobil has continued its policy of annual dividend increases (extending its streak to 34 years) even during tough times for the industry, while Chevron has not raised its dividend since the second period of 2014. This is one reason why Chevron stock has a higher dividend yield than Exxon Mobil. The Commentary does suggest that there is a possibility of a modest dividend hike for Chevron in 2017, despite the fact that the company’s earnings might not cover the disbursement next year.
Even in a tough environment, Exxon Mobil and Chevron must still develop their business to replace their oil and gas reserves and respond to rising worldwide demand. The Commentary section provides examples of what the companies are doing. Exxon Mobil is using its stock for a $2.2 billion acquisition of a natural gas producer. Chevron and partners have a planned $37 billion expansion project in Kazakhstan.
Exxon Mobil and Chevron are very strong financially. The Capital Structure box indicates that long-term debt makes up a small proportion of total capitalization. The Current Position box lists a sizable cash hoard for each company. The Ratings section shows that each company has a top-notch score of A++ for Financial Strength.
Of the two stocks, we like Exxon Mobil better than Chevron at this juncture. The Ranks box shows that Exxon Mobil is ranked 2 (Above Average) for Timeliness, while Chevron is ranked 3 (Average) for year-ahead relative performance. With a Safety rank of 1 (Highest), each equity is suitable for conservative investors. The Ratings box illustrates that each stock gets a high mark for Price Stability, although Exxon Mobil’s, at 95 out of 100, is greater than Chevron’s score of 75. Finally, the Projections box indicates that each issue offers similar, decent risk-adjusted total-return potential over the 3- to 5-year period. We project oil prices will rise to the low to mid-$60-a-barrel range in the 2019-2021 period, which ought to result in higher profits and dividends for both Exxon Mobil and Chevron over that time frame.