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Proprietary Data Insights Financial Pros’ Top Integrated Oil & Gas Stock Searches in the Last Month
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Exxon Flexes its Muscles – Financial Pros Take Notice |
In 2014, everything changed for Exxon Mobil (XOM). You see, for nearly a decade, Exxon was the largest company by market cap in the world, only displaced a few times by PetroChina. Fracking technology unleashed a wave of oil and natural gas supply, restructuring the global energy complex. Investments in new drilling projects evaporated. A decade later, demand outstrips supply, and with interest rates higher than they’ve been in decades, few companies are looking to expand in the volatile energy sector. That’s why many financial pros noticed when Exxon announced plans to acquire Pioneer Energy Resources and their 850,000 acres in the Midland Basin. Search volume for Exxon doubled despite flagging oil prices. It made us wonder whether there was more value here than meets the eye. Exxon Mobil’s Business Chances are you’ve stopped at an Exxon gas station at some point in your life since there are almost 12,000 in the U.S. Exxon is an integrated oil and gas company – meaning it operates as a driller, refiner, and marketer (gas stations). This is also referred to as upstream and downstream operations, which is how they report their business.
Financials
Source: Stock Analysis Like many oil & gas companies, Exxon’s earnings and profitability soared alongside global oil prices, which was reflected in their latest earnings report. However, revenues have begun to decline as oil prices and global demand slid. It remains an open question whether the global economy will skirt a recession or not. Nonetheless, Exxon’s operating at its highest margins, from gross down to profit, in the last decade. Exxon is financing its acquisition of Pioneer Resources with stock, increasing its total share count from 3.9 billion by around 14% or 546 million shares. That’s a surprising choice given the company’s total debt sits at just $41.2 billion, with net debt at $8.3 billion. Still, Exxon’s picking up Pioneer at a bit of a discount to it’s all-time high price. Valuation
Source: Seeking Alpha Exxon and Chevron (CVX) are the two closest competitors of the large integrated oil companies. Both trade at similar price-to-earnings and price-to-cash flow ratios. Foreign companies like Petrobras (PBR), British Petroleum (BP), and YPF Sociedad Anonima (YPF) trade at lower multiples due to foreign exchange rates and other perceived risks. Growth
Source: Seeking Alpha Outside of YPF, all the companies listed here have seen roughly similar revenue and earnings growth over the last few years. Even the forward outlooks are remarkably similar, with differences likely due to project and revenue recognition timing. It goes to show how tightly the industry trades these days. Profitability
Source: Seeking Alpha We finally see some separation on the margins, though not a ton. Exxon and Chevron delivered similar EBIT margins. Yet, Chevron has a higher free-cash-flow margin while Exxon boasts higher returns on assets, equity, and capital. Petrobras exhibits the best profitability across the board. Yet, it comes with higher geopolitical risks as a Brazilian company. Our Opinion 8/10 Exxon is a core holding for every investor’s portfolio. They’re the largest and arguably one of the best-run companies in the world. Plus, their fortress balance sheet and cash flow allow them to maneuver in ways their competitors can’t match. Therefore, we favor a cautious approach to any new positions, only buying into dips. |
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