Why Chevron Is Still Expected to Greatly Outperform Exxon Mobil

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Chevron Corp. (NYSE: CVX) is going higher, and perhaps leaving Exxon Mobil Corp. (NYSE: XOM) in the dust. That is the take from Jefferies, which raised its estimates and added Chevron to its Franchise Picks list. At times, analysts have favored Exxon Mobil over Chevron, but that just is not the case as February comes to a close.

The driving force behind the positive Jefferies view on Chevron is the company’s cash, growth opportunities and prized Permian Basin assets. Jason Gammel of Jefferies already had a Buy rating on Jefferies, but he raised his price target to $147 from $141.

It is no secret that the bull market strength has continued since the end of 2016. All-time highs day after day tend to bring enthusiasm. The S&P 500 was up about 6% and the Dow Jones Industrial Average was up almost as much. Both Chevron and Exxon Mobil are members of each index. Still, Chevron was last seen down about 5% and Exxon Mobil was down over 9% year to date.

What should stand out in the report is that Jefferies is far more excited about Chevron than the consensus estimates from Thomson Reuters and elsewhere. Gammel raised this year’s earnings estimate for Chevron to $9.32 per share from $9.09. The prior street-high analyst price target was $145, so Jefferies is now more bullish on Chevron than any other firm on Wall Street.

Standard & Poor’s has earnings per share (EPS) estimates of $4.69 in 2017 and $6.39 in 2018, with a 12-month target price of $114. The Thomson Reuters consensus price target is closer to $126.25 and the consensus EPS estimate for 2017 is $4.56 and in 2018 it is $6.03 EPS.

According to the research report, Chevron is reaching multiple strategic inflection points in 2017. The report said:

We analyze Chevron’s free cash and production growth profiles through the end of the decade and the 5-year and 20-year potential of its Permian portfolio in advance of the March 7 Security Analyst Meeting.

Back on February 1, Jefferies maintained its Hold rating on Exxon Mobil. The firm also had only a $92 price target at that time.

24/7 Wall St. wanted to take a look at the other side of the coin in competing analyst reports. After all, we wouldn’t want you thinking we just jump on board of every positive analyst report we read.

Also after Exxon’s earnings, Credit Suisse maintained its Underperform rating on Exxon Mobil but raised its target to $78 from $75 (noting upside to $83 per share depending on free cash flow delivery).

Wells Fargo issued a note full of much more caution a week earlier. The firm rated the integrated oil and gas sector with a Market Weight rating. Its key takeaway on the group said:

We maintain our view that the Super Majors remain Market Perform equities for the foreseeable future. Blame it on valuation and size, or credit a more disciplined returns-focused investment approach. Despite what is likely to be a significant amount of good news at the upcoming Analyst Days regarding mega project completions and Permian Basin opportunities, we see little scope for either Chevron or ExxonMobil to deliver production or reserves growth outperformance in coming years. History proves that these companies are not growth vehicles. Absent major acquisitions, the Super Majors likely face production and reserves growth challenges through the end of the decade and likely beyond, in our view.

After the earnings report, several analysts were cautious on Exxon Mobil:

  • Barclays (Equal Weight) cut its target price to $94 from $97.
  • Goldman Sachs (Neutral) cut its target price to $89 from $93.
  • Independent Research (Hold) cut its target price to $87 from $90.

Exxon Mobil shares were last seen trading up 0.7% at $81.64, in a 52-week range of $80.05 to $95.55. Its consensus analyst price target is $88.57. Exxon’s highest analyst target price is all the way up at $104.

Shares of Chevron were up 1.6% at $111.90. Its 52-week range is $83.07 to $119.00, and its consensus price target is $126.25.