Better Oil Stock: Chevron or Exxon? | CVX Stock vs. XOM Stock

SUMMARY

Parkev Tatevosian, CFA, provides a detailed comparison of Chevron and ExxonMobil, focusing on their financial performance, profitability, and valuation amid volatile oil markets. The analysis highlights the cyclical nature of the oil industry, recent demand drivers, and the minimal differentiation between the two companies.

MAIN POINTS

• The discussion opens with a comparison of Chevron and ExxonMobil in the context of rising oil prices and ongoing geopolitical tensions. [0:00]
• Chevron and ExxonMobil have both experienced significant revenue growth since 2017, reflecting the cyclical nature of the oil industry. [1:02]
• Both companies show similar operating profit margins, with Chevron slightly ahead in the most recent period, and new demand from AI-powered data centers is noted. [2:01]
• Returns on invested capital for both companies are close to their weighted average cost of capital, and their forward price-to-earnings ratios are nearly identical. [3:00]
• Discounted cash flow models suggest both Chevron and ExxonMobil are undervalued, and both are rated as attractive buys for portfolio diversification. [4:01]
• The analyst reveals a personal preference for ExxonMobil, citing a 2020 purchase at $25 per share, but ultimately calls the comparison a tie due to minimal differences. [6:01]

DETAILED ANALYSIS

Chevron and ExxonMobil, two of the largest integrated oil companies, have demonstrated the cyclical nature of the oil industry over the past decade, with revenues fluctuating in response to global events such as wars and shifts in supply and demand. Chevron's revenue surged to $211 billion in the most recent period, nearly doubling from 2017, while ExxonMobil's revenue increased to $364 billion from $220 billion over the same timeframe. These swings are attributed to factors like supply disruptions, new oil discoveries, OPEC's production decisions, and global economic conditions that influence demand.

Both companies have adapted to these cycles, maintaining resilience through operational efficiency.

Profitability metrics reveal that Chevron recently achieved a higher operating margin of 13.3% compared to ExxonMobil's 11.3%, though both have seen improvements. A notable emerging demand driver is the partnership with AI companies, where Chevron supplies liquefied natural gas to power data centers, addressing local community concerns about energy prices. This diversification could provide additional stability in future earnings.

Returns on invested capital are similar for both firms, with ExxonMobil at 10.87% and Chevron at 9.4%, figures that are close to their weighted average cost of capital and indicate modest value creation. Valuation measures, including forward price-to-earnings ratios, are nearly identical—15.1 for Chevron and 14.9 for ExxonMobil—reflecting the commodity nature of their products and the limited differentiation in their core businesses. Discounted cash flow analysis suggests both stocks are undervalued at current prices, with Chevron's fair value estimated at $290 and Exxon's at a higher, unspecified figure, compared to their market prices of $198 and $159, respectively.

The recommendation is that both stocks are suitable for investors seeking diversification, particularly if they lack exposure to the energy sector. The analyst personally favors ExxonMobil, having acquired shares at a low point in 2020, but ultimately considers the two companies nearly indistinguishable in terms of investment potential.

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