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Buy These 2 Oil Giants Before They Report Earnings?
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Energy has been the best-performing sector in the market for two years, but can it continue? On Friday, April 28 the two largest US-based oil companies, Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) report their quarterly earnings.
Exxon Mobil
Exxon Mobil is one of the largest and most powerful companies in the world and has a prestigious business history. XOM can trace its origins back to the Standard Oil monopoly, and even before that. Vacuum Oil company, founded in 1866, was taken over by Standard Oil in 1931, which eventually transformed into Exxon Mobil.
Today Exxon Mobil is a vertically integrated oil mammoth that produces about 3% of the world's oil and 2% of the world's energy. Its status in the energy sector makes it an important bellwether for the sector more broadly.
Exxon Mobil has a Zacks Rank #3 (Hold), indicating mixed earnings revisions. Current quarter earnings have been revised higher over the last two months, but all other timeframes have been revised lower. Analysts project current quarter sales to grow 5.4% YoY to $95 billion and earnings over the same period to climb 30.4% YoY to $2.70 per share.
Image Source: Zacks Investment Research
Over the last two years Exxon Mobil stock is up 124%, far outperforming both the sector and market indexes. Additionally, it is currently building out a compelling bullish technical pattern.
After gapping higher following the OPEC+ decision to cut daily oil production, XOM price action has carved out a decisive bull flag. The reversal candle from Thursday, which broke below the patter and reversed higher, is a further bullish indication.
If XOM can trade above the $117 level it should see another push to all-time highs. Alternatively, a close below the $114 would invalidate the pattern. The likeliest scenario is that the stock waits for the earnings report to break in either direction making it a bit more challenging of a trade setup.
Image Source: TradingView
XOM is trading at a one-year forward earnings multiple of 12x, which is above the industry average 9x, and well below its 10-year median of 18x. Additionally, XOM has a dividend yield of 3.1%, which it has raised an average of 1.8% annually for the last five years.
Image Source: Zacks Investment Research
Chevron
Chevron, another vertically integrated energy giant, can also trace its history back to the Standard Oil empire. CVX was founded in 1879, as Star Oil. After being scooped up by Rockefeller’s Standard Oil in 1900 and then spun out in 1911 following the break-up of the monopoly, it became part of the “Seven Sisters,” which dominated the oil industry in the 1900s.
Chevron is a Zacks Rank #3 (Hold) right now, indicating mixed earnings revisions. Sales growth for the current quarter is expected to fall -11% YoY and earnings are projected to be flat. The next quarter and current year are expecting further dips in growth as well, however next year’s sales are earnings are expected to make a full recovery.
Image Source: Zacks Investment Research
While quarterly earnings are always an important consideration when looking at a stock it is also worth recognizing that CVX has a 150-year history of business success. Many investors have done well investing in oil and gas over the last two years, but just before that many were exclaiming it was “the end of oil.” While maybe one day in the distant future the world will move on from the current energy paradigm, I think it is a far way off.
Image Source: U.S. Energy Information Administration
Over the last 25 years CVX has returned to 10% annually, nearly 10’xing investors’ money over that time. Making it an even more compelling long-term investment is its dividend payment, which currently yields 3.5%. Chevron has increased the dividend payment 6.1% annually for the last five years and has a long history of raising its dividend.
Over the last 20 years CVX has bought back $65 billion worth of shares, and recently announced a new share repurchase program of $75 billion to put into action over the next few years.
Image Source: Zacks Investment Research
Chevron is currently trading at a one-year forward earnings multiple of 12x, which is above the industry average 9x, and below its 10-year median of 18x. As a commodity producer, it will always be vulnerable to severe downturns in the price of oil, but its history of surviving cycles of the past have demonstrated its operational performance.
Image Source: Zacks Investment Research
Bottom Line
Exxon Mobil and Chevron are two exceptional companies, with long histories of stock appreciation and returning cash to investors though dividends and buybacks. While the coming earnings reports are significant for the returns over the next few months, these are stocks that investors should consider holding for long periods of time.
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Buy These 2 Oil Giants Before They Report Earnings?
Energy has been the best-performing sector in the market for two years, but can it continue? On Friday, April 28 the two largest US-based oil companies, Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) report their quarterly earnings.
Exxon Mobil
Exxon Mobil is one of the largest and most powerful companies in the world and has a prestigious business history. XOM can trace its origins back to the Standard Oil monopoly, and even before that. Vacuum Oil company, founded in 1866, was taken over by Standard Oil in 1931, which eventually transformed into Exxon Mobil.
Today Exxon Mobil is a vertically integrated oil mammoth that produces about 3% of the world's oil and 2% of the world's energy. Its status in the energy sector makes it an important bellwether for the sector more broadly.
Exxon Mobil has a Zacks Rank #3 (Hold), indicating mixed earnings revisions. Current quarter earnings have been revised higher over the last two months, but all other timeframes have been revised lower. Analysts project current quarter sales to grow 5.4% YoY to $95 billion and earnings over the same period to climb 30.4% YoY to $2.70 per share.
Image Source: Zacks Investment Research
Over the last two years Exxon Mobil stock is up 124%, far outperforming both the sector and market indexes. Additionally, it is currently building out a compelling bullish technical pattern.
After gapping higher following the OPEC+ decision to cut daily oil production, XOM price action has carved out a decisive bull flag. The reversal candle from Thursday, which broke below the patter and reversed higher, is a further bullish indication.
If XOM can trade above the $117 level it should see another push to all-time highs. Alternatively, a close below the $114 would invalidate the pattern. The likeliest scenario is that the stock waits for the earnings report to break in either direction making it a bit more challenging of a trade setup.
Image Source: TradingView
XOM is trading at a one-year forward earnings multiple of 12x, which is above the industry average 9x, and well below its 10-year median of 18x. Additionally, XOM has a dividend yield of 3.1%, which it has raised an average of 1.8% annually for the last five years.
Image Source: Zacks Investment Research
Chevron
Chevron, another vertically integrated energy giant, can also trace its history back to the Standard Oil empire. CVX was founded in 1879, as Star Oil. After being scooped up by Rockefeller’s Standard Oil in 1900 and then spun out in 1911 following the break-up of the monopoly, it became part of the “Seven Sisters,” which dominated the oil industry in the 1900s.
Chevron is a Zacks Rank #3 (Hold) right now, indicating mixed earnings revisions. Sales growth for the current quarter is expected to fall -11% YoY and earnings are projected to be flat. The next quarter and current year are expecting further dips in growth as well, however next year’s sales are earnings are expected to make a full recovery.
Image Source: Zacks Investment Research
While quarterly earnings are always an important consideration when looking at a stock it is also worth recognizing that CVX has a 150-year history of business success. Many investors have done well investing in oil and gas over the last two years, but just before that many were exclaiming it was “the end of oil.” While maybe one day in the distant future the world will move on from the current energy paradigm, I think it is a far way off.
Image Source: U.S. Energy Information Administration
Over the last 25 years CVX has returned to 10% annually, nearly 10’xing investors’ money over that time. Making it an even more compelling long-term investment is its dividend payment, which currently yields 3.5%. Chevron has increased the dividend payment 6.1% annually for the last five years and has a long history of raising its dividend.
Over the last 20 years CVX has bought back $65 billion worth of shares, and recently announced a new share repurchase program of $75 billion to put into action over the next few years.
Image Source: Zacks Investment Research
Chevron is currently trading at a one-year forward earnings multiple of 12x, which is above the industry average 9x, and below its 10-year median of 18x. As a commodity producer, it will always be vulnerable to severe downturns in the price of oil, but its history of surviving cycles of the past have demonstrated its operational performance.
Image Source: Zacks Investment Research
Bottom Line
Exxon Mobil and Chevron are two exceptional companies, with long histories of stock appreciation and returning cash to investors though dividends and buybacks. While the coming earnings reports are significant for the returns over the next few months, these are stocks that investors should consider holding for long periods of time.