Energy Business

Earnings Previews: Exxon, Conoco, BP

Last year was a tough one for oil and gas stocks. The Biden administration has made no secret of its plan to reverse the previous administration’s position on climate change and already has erased Trump’s approval for the Keystone XL pipeline and drilling for oil and gas on federal lands.

That doesn’t mean that investors should give up on fossil fuel stocks, according to analysts at BofA Securities, which last week either raised or reiterated Overweight ratings on some big energy stocks.

Some of that enthusiasm is related to the handsome dividends some of the energy stocks pay. Chevron Corp. (NYSE: CVX), for example, pays a current dividend yield of 5.8%, down slightly from its end of 2020 yield of around 6.05%, making it the highest-yielding stock in our Dogs of the Dow year-end summary.

Include a 43% jump in crude oil prices and concomitant increases in oil stocks, and investing in oil and gas companies looks a bit better as the economy tries to get back on its feet.

Cutting expenses, particularly capital spending, was the priority in 2020. When Chevron reported earnings last Friday, CEO Mike Wirth touted the company’s 35% year-over-year reduction in capital spending, which totaled some $1.4 billion. Chevron added $7.5 billion in new debt last year to help pay its $9.7 billion dividend expenses. The company’s full-year net loss totaled $5.6 billion.

Three more big oil companies are scheduled to report fourth-quarter and full-year results Tuesday morning.

BP

First up is BP PLC (NYSE: BP), the London-based supermajor that posted a replacement cost loss of nearly $19 billion in the first three quarters of the fiscal year. Its adjusted loss (what BP calls its underlying replacement cost) totaled $5.8 billion in the same period. BP recorded $9.8 billion in write-offs during the first three-quarters of 2020, most of it in the second quarter. BP also has cut its dividend to $0.315 per American depositary share (ADS), one of which is equal to six ordinary shares).

Analysts expect the company to post earnings per share (EPS) of $0.08 for the quarter and a loss per share of $1.33 for the full year. Fourth-quarter revenue is estimated at $46.6 billion, down by more than a third year over year, and full-year revenue is expected to fall by around 30% to $198 billion.

At a recent price of around $22 per ADS, the stock trades at a multiple of around 13.5 times expected 2021 earnings and 8.7 times expected EPS in 2022. The current 52-week range on the stock is $14.74 to $37.78, and the consensus 12-month price target is $28.73. BP pays a dividend yield of 5.67%.