Two major oil and gas companies, Chevron (CVX) and Exxon Mobil (XOM), have recently reported their earnings. While XOM is trading 8.5% below its historic highs, CVX is trading just 1% below record prices. Recent reports give us a chance to compare these two giants.
|Stock||P/E||Forward P/E||P/B||Dividend Yield||Performance, YTD|
(data sourced from Yahoo! Finance)
Market participants have favored Chevron this year. It has performed five times better than Exxon Mobil since the beginning of the year. Current P/E is attractive in both companies as is the forward P/E. Earnings estimates have risen for both companies during the last 90 days (estimates sourced from Yahoo! Finance). Chevron's earnings projections for 2013 and 2014 have increased 1% and 2.1% respectively. Exxon Mobil's estimates gained less, increasing 0.3% and 1.2%. CVX's earnings estimates momentum is better than XOM's.
Both companies have made dividend hikes. Chevron has increased its dividend by 11.1%, XOM has made a 10.5% rise. In its earnings call, Chevron states that since 2004, the dividend has grown at a compound annual rate of 11%. Both companies are solid dividend plays.
CVX and XOM continue to execute their share repurchase programs. In its earnings call, XOM stated that share purchases to reduce shares outstanding are expected to be $4 bln in the second quarter. XOM could buy 45.2 mln of its own shares at current prices, 3.5 times average daily trading volume. This is not a very significant amount, but it could help lift shares a little. Chevron plans to repurchase $1.25 bln shares, the same amount as in the first quarter. CVX could buy 10.3 mln of its own shares at current prices, 1.8 times average daily trading volume. In the earnings call, CVX stated that the cornerstone of its policy to deliver value to shareholders is the dividend and not the buyback of its own shares.
Upstream (exploration and production) adjusted return on capital employed for CVX was 21.5% for 2012. This placed Chevron in the number one position relative to major peers for the second year in a row. Efficiency could be the reason why Chevron outperforms this year in comparison with other oil & gas majors.
While XOM is a great diversified company with good valuation and solid dividend yield, the stock has been stuck in a range during 2013. The industry shares the same headwinds. The U.S. growth is moderate. There are signs of a slowdown in China. Europe has significant economic problems to deal with. To see new highs, XOM must deliver some major positive news. Exxon Mobil is working with Rosneft on 180 million acres in the Russian Arctic. In the conference call, XOM calls this project "some of the most promising and least explored acreage in the world." If it finds what it is searching for, it would give the stock a boost. Until then, XOM is a dividend play and hardly a stock that will grow a lot.
Chevron has more room to grow. With a better forward P/E and a better price-to-book ratio than XOM, CVX can see a rise in the price of its stock before the valuations of two companies become equal. I would like to remind that CVX is a giant company, and its stock is highly unlikely to appreciate at a fast pace. It takes a lot of money to move such stocks up or down. I would recommend buying CVX to income-oriented investors who want to strengthen their portfolios. CVX is not a stock for growth-oriented investors who seek big returns.