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ExxonMobil vs. Chevron: Which Supermajor is the Better Buy?

With a massive market cap of $186.4 billion and $164.9 billion of Exxon Mobil Corporation XOM and Chevron Corporation CVX, respectively, both dominate the energy sector. Although both the companies have a strong footing to combat coronavirus-induced weak energy business scenario, there are reasons for investors to favour Chevron over ExxonMobil.

Energy Market Downturn

The coronavirus pandemic has hammered global energy demand. Strict social distancing measures to combat the virus spread have drastically reduced fuel demand, which in turn resulted in oil price plunge since the beginning of 2020. From more than $60-A-BARREL mark in the beginning of 2020, the price of West Texas Intermediate (WTI) crude slipped more than 34%.

In the second quarter, exploration and production activities contracted significantly since several energy majors have curtailed capital spending to survive coronavirus-induced low commodity prices.

Also, investors are concerned about a new wave of coronavirus infection, and there are uncertainties about the extent to which the economy and energy market can recover in the second half of 2020. Hence, with the widespread uncertainty, significant recovery in oil and gas activities over the last six months of the year doesn’t seem like a possibility.

Pandemic Not a Big Threat for ExxonMobil & Chevron

The choppiness in the energy market is unlikely to affect ExxonMobil & Chevron since both the stocks can rely on their respective strong balance sheets. Both the stocks have significantly lower debt exposure than the composite stocks belonging to the industry. While the debt-to-capitalization ratio of ExxonMobil is 0.14, the same for Chevron stands at 0.18. In comparison, other energy giants like BP plc BP and Royal Dutch Shell plc RDS.A have a significantly higher debt-to-capitalization ratio of 0.43 and 0.34, respectively.

Hence, it is clear that both ExxonMobil & Chevron can rely on their balance sheet strengths — especially in the present challenging business scenario — to keep investing in business and return cash to shareholders. In order to fund dividend payments at least for the next few quarters, ExxonMobil tapped the debt market in March and April to raise $18 billion in debt capital.

Chevron’s Edge Over ExxonMobil

ExxonMobil, currently carrying a Zacks Rank #2 (Buy), has an aggressive capital spending program in place. For the long term, ExxonMobil is planning to spend aggressively for more growth, especially when most of the energy players are setting up a conservative capital budget as investors are constantly pressing companies to focus more on returns rather than solely on production.

Investor sentiment for ExxonMobil will remain poor until the integrated energy firm, which generates negative free cash flows after paying dividend, comes out with some promising results from the massive capital spending program.

Meanwhile, Chevron has a conservative capital budget in place. The company has kept capital expenditure almost unchanged over the past three years. This #2 Ranked company has kept its capital expenditure target through 2024 stable, thereby creating opportunities to generate considerable cash flows.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
Chevron Corporation (CVX): Free Stock Analysis Report
 
BP p.l.c. (BP): Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
 
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