Why Goldman Sachs Now Sees Chevron Better Off Than Exxon Mobil

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It is not uncommon for an analyst on Wall Street to favor one major peer over another. An October 31 call from Goldman Sachs stands out handily from other key analyst calls in the oil and gas sector.

Chevron Corp. (NYSE: CVX) was raised to Buy from Neutral at Goldman Sachs, and the firm added it to the prized Conviction Buy List. Goldman Sachs raised Chevron’s price target to $118 in this call, versus a prior closing price of $103.82. Chevron’s new consensus analyst price target from Thomson Reuters is $113.33.

Goldman Sachs downgraded Exxon Mobil Corp. (NYSE: XOM) to Neutral from Buy, and the oil and gas giant was removed from the Conviction Buy list. Exxon Mobil’s price target was cut to $93 from $98, but investors might want to take note that Exxon Mobil closed out last week at $84.78. Exxon Mobil has a new consensus price target of $89.00.

What was interesting to see here is that both energy giants have continued to see a drop in their profits. Several issues were cited in the Goldman Sachs note:

  • Exxon Mobil was previously considered to be a defensive oil winner, but now the firm sees Chevron as better for generating cash flow.
  • Chevron is now seen as better off for expected production growth ahead.
  • Chevron is now believed to be better positioned for a re-rating against its earnings and EBITDA multiples.
  • There were also very few catalysts expected that would drive Exxon Mobil to outperform Chevron.
  • A range-bound price environment for oil may now be better for Chevron than Exxon Mobil.
  • Exxon has been hesitant to consider larger mergers or acquisitions to boost reserves.

Other analysts have keyed in on some of these price targets as well, now that earnings are behind both:

  • Chevron: Jefferies raised its target to $120 from $116.
  • Chevron: Scotia Howard Weil raised its target to $114.
  • Chevron: Credit Suisse raised its target to $110 from $100.
  • Chevron: JPMorgan raised  its target to $123 from $117.
  • Exxon Mobil: Barclays lowered its target price to $97 from $100.
  • Exxon Mobil: JPMorgan lowered its target price to $95 from $96.

There has been an opposite move in these stocks on Monday. As a reminder, Goldman Sachs caters almost exclusively to a client base made up of institutional investors and high net worth individual investors. In short, the firm is telling the rich” “Buy Chevron, Dump Exxon!”

Investors need to consider that both Exxon Mobil and Chevron are Dow Jones Industrial Average components. On Friday, Chevron shares rose by 3.9% after earnings, and Exxon Mobil fell 2.5% after earnings. Now we are seeing more of the same on Monday:

  • Exxon Mobil shares were last seen down 1.5% at $83.50, in a 52-week range of $71.55 to $95.55. Its market cap is $346 billion.
  • Chevron shares were last seen up 1.35% at $105.23, in a 52-week range of $75.33 to $107.58. Chevron’s market cap is $198.5 billion.