Exxon Mobil Corporation (XOM) in Irving, Tex., explores and produces crude oil and natural gas in the United States and internationally. It operates through Upstream, Downstream, and Chemical segments. ConocoPhillips (COP), in comparison, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids worldwide. COP is based in Houston, Tex.
Despite the rapid spread of the COVID-19 Delta variant that is threatening the global economic recovery, the EIA expects the global consumption of petroleum and liquid fuels to average 97.60 million b/d for all of 2021. This reflects a 5.30 million b/d increase from 2020. The EIA also expects Brent prices to remain near current levels for the remainder of 2021, averaging $72/b from August through November. Thus, the stable demand conditions should allow XOM and COP to maintain their financial strength in the coming months.
COP has gained 12.3% in price over the past six months, while XOM has returned 4.6%. Also, COP’s 33.9% gains year-to-date compare with XOM’s 32% returns. In terms of nine-month’s performance, XOM is the clear winner with 46.2% gains versus COP’s 36.6%.
But which stock is a better buy now? Let’s find out.
Latest Developments
On July 26, XOM, together with SABIC, announced that their joint venture, Gulf Coast Growth Ventures, which is located near Corpus Christi, Texas, had reached mechanical completion of a monoethylene glycol unit and two polyethylene units. The company expects the project startup to begin in the fourth quarter of 2021. This should promote XOM’s growth in the near term.
On July 13, COP declared a $0.43 per share quarterly dividend, payable to stockholders of record at the close of business on July 26, 2021.
Recent Financial Results
COP’s total revenues increased 154.3% year-over-year to $10.21 billion in its fiscal second quarter, ended June 30. Its net income attributable to the company grew 704.2% from its year-ago value to $2.09 billion. The company’s EPS increased 545.8% year-over-year to $1.55. Also, its cash and cash equivalents rose 118.1% year-over-year to $6.96 billion in the six months ended June 30.
XOM’s revenues increased 107.8% year-over-year to $67.74 billion in its fiscal second quarter, ended June 30. Its earnings increased 534.3% year-over-year to $4.69 billion. The company’s EPS improved 523.1% year-over-year to $1.10, and its cash flow from operating activities stood at $9.65 billion.
Past and Expected Financial Performance
XOM’s revenue has grown at a 0.9% CAGR over the past five years, while its tangible book value declined at a 5.4% CAGR over the past three years. Analysts expect XOM’s revenue to increase 62.2% in the current quarter, 72% in the next quarter, and 51.7% in the current year. The company’s EPS is expected to grow 11% in the next year.
In comparison, COP’s revenues have grown at a 4.2% CAGR over the past five years, while its tangible book value grew at a 12.6% CAGR over the past three years. Analysts expect the company’s revenue to increase 136.8% in the current quarter, 73.6% in the next quarter, and 120.2% in the current year. The company’s EPS is expected to grow 6.3% in the next year.
Profitability
COP is more profitable, with a 43.81% gross profit margin and a 35.06% EBITDA margin compared to XOM’s 31.56% and 11.33%, respectively.
Furthermore, COP’s ROE, ROA, and ROTC of 4.89%, 2.40%, and 3.21%, respectively, compare with XOM’s ROE of negative 7.79%, and ROA and ROTC of 1.13% and 1.64%, respectively.
Thus, COP is more profitable here.
Valuation
In terms of forward EV/Sales, COP is currently trading at 1.94x, which is 43.8% higher than XOM’s 1.09x. However, XOM’s 6.21 forward EV/EBITDA ratio is 30.9% higher than COP’s 4.29.
POWR Ratings
COP has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. XOM, in contrast, has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
COP has a B grade for Sentiment. This is justified because of 20 Wall Street analysts that rated the stock, 19 rated it Buy. XOM, on the other hand, has a C grade for Sentiment. Of the 13 Wall Street analysts that rated the stock, five rated it Buy, while seven rated it Hold, and one rated it Sell.
Both stocks have a C grade for Stability owing to their slightly high beta. COP has a 1.78 beta , while XOM’s beta is 1.43.
Of the 92 stocks in the Energy - Oil & Gas industry, COP is ranked #18, while XOM is ranked #56.
Beyond what we’ve stated above, we have also rated the stocks for Stability, Momentum, Value, and Growth. Click here to view COP ratings. Also, get all XOM ratings here.
The Winner
Oil prices are expected to remain stable in the coming months, backed by strong international demand. This should allow oil-producing companies to remain operational despite renewed COVID-19 concerns. We think COP’s higher profit margins compared to XOM makes it a better bet here.
Our research shows that odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Energy - Oil & Gas industry here.
XOM shares were unchanged in after-hours trading Thursday. Year-to-date, XOM has gained 33.99%, versus a 18.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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