DJ Buy Exxon Mobil, Analyst Says. It's a Better Deal Than Chevron. -- Barrons.com
Friday, June 03, 2022 06:02:44 PM (GMT)
Investors haven't given Exxon Mobil full credit for its capital discipline and strong balance sheet, while Chevron has been well rewarded, J.P. Morgan's Phil Gresh said.
On Friday, the analyst reiterated his Overweight rating on Exxon and an Underweight call on Chevron.
Exxon's stock has more upside from here as investors are not fully accounting for its diversified portfolio, a much-improved balance sheet, a recently tripled commitment to stock buybacks, and its restraint on capital spending, Gresh said in a research note on Friday. The company is in a much better position to return capital to shareholders than Chevron, which has a similar profile and trades at a premium, Gresh said in a note on Friday.
Exxon's stock (ticker: XOM) inched up 1.3% to $98.92 on Friday, while Chevron (CVX) was up by 1% to $177.53. Gresh has a $108 price target on Exxon and a $170 target on Chevron's stock.
Exxon stock trades at 10.6 times forward earnings while Chevron is much more expensive at 16.6 times, according to FactSet. J.P. Morgan has designated Exxon as its top pick across its coverage.
Exxon trades at a discount to Chevron despite being a well-diversified global major with solid growth prospects across its business lines. "We think XOM still has room for more valuation re-rating," Gresh said.
In April, Exxon said it was tripling its share repurchase plan to a total of up to a $30 billion through 2023, while keeping its capital spending relatively modest. In the latest quarter, it used $2.1 billion net cash for the purchase of 26.2 million shares of stock.
Gresh said he believes Chevron's valuation, meanwhile, already reflects the company's strengths.
To be sure, the analyst does think Chevron's stock price will appreciate further, given the favorable environment for stocks in the energy sector. But he said the near-term potential for total returns is minimal, as suggested by his Underweight rating on the stock.
Both stocks are up more than 50% this year, rising along with other energy companies as oil prices have taken off. West Texas Intermediate crude oil, the benchmark for the U.S. market, is up almost 60% for the year.
Write to Karishma Vanjani at email@example.com
(END) Dow Jones Newswires
June 03, 2022 14:02 ET (18:02 GMT)