Energy

Why Credit Suisse Sees Chevron More Valuable Than Exxon Mobil

Jon C. Ogg

Published: November 5, 2018 10:45 am

Last Updated: January 11, 2020 3:23 pm

Last week’s earnings brigade included oil giants Chevron Corp. (NYSE: CVX) and Exxon Mobil Corp. (NYSE: XOM). Exxon’s gain of 1.6% to $81.95 was overshadowed by Chevron’s post-earnings gain of 3.2% to $114.73. Now one firm on Wall Street is calling for Chevron to be a better value than rival Exxon.

Credit Suisse’s William Featherston raised his rating on Chevron to Outperform from Neutral. That said, the firm’s Chevron price target was maintained at $138.

Exxon, which beat expectations on better upstream and downstream performances with higher prices and production, was maintained as Neutral at Credit Suisse.

Since this call really was highlighting Chevron’s beat and value over Exxon, 24/7 Wall St. wanted to break down the positives here to see what’s really driving the upgrade.

Featherston talked up Chevron’s continued execution and free cash flow visibility, and he further noted a compelling valuation. The report said:

Chevron continues to execute on its already superior growth outlook, which should translate into better than expected capital efficiencies into 2019 and sets up for continued robust free cash flow. We see upside to 2019-20 volume forecasts (approximately 3% to 4% above consensus) supported by strong Permian growth, driving an estimated $10 billion to $11 billion per annum of surplus free cash flow generation which should enable Chevron to sustain competitive dividend growth and expand the scope of its current share buyback program.

Also worth noting was that Chevron’s recent relative share price action effectively has derated its valuation to a much wider than normal discount to Exxon. The firm also noted Chevron’s attractive relative P/E and a compelling free cash flow yield of about 10%. Additional drivers were noted as follows:

• raised 2018 production growth guidance
• guided 2018 capex up about 5% on steeper cost inflation, Tenzig over-runs, and higher Permian non-operational spending;
• reiterated 2019/2020 capex target of $18 billion to $20 billion per year;
• raised 2019 to 2020 earnings;
• third quarter beat on strong Upstream & Downstream;
• and $138 target price is based on ~8.7x normalized 2019E DACF.

While Featherston’s rating on Exxon remains Neutral, the firm did slightly lower its estimates.

Chevron shares were up 3.6% at $118.88 Monday morning, and its consensus target price is $145.89. Exxon shares were last seen down 0.5% at $81.92. Exxon’s consensus target price is $89.85.

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