Energy

Wall Street Takes Differing Big Oil Views on Chevron and Exxon After Bad Earnings Reaction

Jon C. Ogg

Published: February 5, 2018 11:05 am

Last Updated: January 12, 2020 3:44 am

Friday’s big sell-off in the stock market felt bad. After all, how could a nearly 666-point drop in the Dow Jones Industrial Average feel good? One issue that drove down the Dow more than the broader S&P 500 was that big oil sold off hard after two sector leaders reported earnings.

Chevron Corp. (NYSE: CVX) was down 5.57% at $118.58 on Friday after poor earnings. Exxon Mobil Corp. (NYSE: XOM) was down 5.1% at $84.53 after its poor earnings report. In fact, it appears that these two companies accounted for over 70 points of the Dow’s 665-point drop on Friday.

24/7 Wall St. has seen both oil and gas giants trade lower again on Monday, and we have highlighted a mixed batch of analyst reports with the equivalent of Buy, Sell and Hold ratings.

Many price target cuts were seen in Chevron shares on Monday. Wells Fargo maintained its Outperform rating and cut the target to $125 from $129. Jefferies maintained its Buy rating but cut its target to $149 from $152. Goldman Sachs maintained its Buy rating but removed Chevron from the Conviction Buy list. Merrill Lynch maintained a Neutral rating and has a $138 price objective on the shares.

Credit Suisse maintained its Neutral rating on Chevron, and the firm lowered its target to just $129 from $130. The analyst was disappointed with Chevron’s earnings and cash flow miss but noted that much of the 2018 outlook seems to be in line with expectations and the free cash flow expansion story is priced into the stock.

CFRA (S&P) maintained its Hold rating on Chevron, but its price target went up $5 to $123. The firm sees its cash flow multiple at a discount to chief rival Exxon, and it sees Chevron harvesting cash flow from major capital projects while still ramping up in the Permian Basin.

Exxon also has seen many target cuts from Wall Street analysts. Credit Suisse maintained its Neutral rating but lowered its target to $80 from $84, noting that it was cutting earnings and production forecasts. Wells Fargo lowered its target to $87 from $88. and Jefferies changed its target price to $87, down from $90.

Piper Jaffray maintained its Neutral rating and $89 price target on Exxon. CFRA (S&P) maintained its Hold rating and its 12-month target remained static at $86. While CFRA sees Exxon generating strong free cash flow (bringing potentially higher dividends and buybacks), the firm said that it sees its growth limited and sees its shares as fully valued.

Merrill Lynch maintained one of the more bullish stances among Wall Street analysts. The firm kept its Buy rating and $102 price objective. The firm sees its investment case intact and views the post-earnings weakness as a particularly attractive buying opportunity for its top major idea. The Merrill Lynch report said:

We view ExxonMobil’s share price response to a bad headline quarter as overdone. It did not help that the wider market corrected on the same day. But we view the perception that oil prices did not translate to Exxon Mobil’s earnings as incorrect. Instead our analysis suggests ‘clean’ earnings and ‘clean DD&A’ leave only a small delta with expected cash flow. Moreover we suggest upstream portfolio leverage is intact but that the lagged effect on two-thirds of Exxon Mobil’s international gas production and transitory issues at Chemicals and refining largely explain Exxon Mobil’s earnings miss.

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As a reminder, the Energy Select Sector SPDR (NYSE: XLE) is heavily dominated by these two U.S. oil giants. Exxon was last shown as 23.1% of the key energy exchange traded fund’s weighting, and Chevron had a 16.2% weighting in the fund. That means that despite having over 30 oil and gas companies inside the fund, the top two players account for roughly 40% of its weighting.

Meanwhile, West Texas Intermediate crude was last seen down 60 cents at $64.85 a barrel on Monday morning.

Chevron shares were still down 0.7% at $117.72 on Monday after an hour and a half of trading. Its 52-week trading range is $102.55 to $133.88, and it has a dividend yield of 3.45%.

Exxon’s stock price was down worse, a 2.5% drop to $82.42. Its 52-week range is $76.05 to $89.30. Exxon has a 3.50% dividend yield.