Yahoo Finance

Shares of oil giants, Exxon Mobil, and Chevron under some pressure today, after both reported second quarter results before the bell. Chevron's adjusted earnings per share falling short of expectations while Exxon beating across the top and the bottom lines. Joining us now is Stuart Glickman, CFRA Research energy equity analyst and deputy research director. Stewart, it's great to see you. So let's dig into some of these names, Stewart. So Chevron adjusted EPS for Q2 misses, cash flow from operations 6.3. Street was closer to 8.9. Curious to get your just initial reactions on that print. What did you make of the report?

Yeah, I thought that the print today for Chevron was was pretty underwhelming, disappointing. Um, you know, you have an expectation of close to three bucks in earnings, and you come up at 2.55. And a lot of the weakness, I would say, is attributable to international upstream for Chevron. They had some operational issues in Kazakhstan, which weighed on them. And then, on top of the print, now you've got the problem of prolonged uncertainty related to the Hess, the Hess transaction, which now it looks like the arbitration is not going to happen until May, perhaps a decision, I would guess, late 2025. So, investors really have to put up with a lot of headwinds to buy into the Chevron story. Uh, we've we've kind of thrown in the towel here. Now, we downgraded Chevron today to a hold from a buy and our new target price is 162, which is up marginally from where we are today, but not meaningfully.

Stewart, do you see any reason to buy the stock before that deal, if and before that deal closes?

So, Julie, great question. So I think the issue with Chevron is you have to presume that a scenario analysis where Exxon prevails in arbitration, right? And Chevron has already said they will walk away from the Hess deal if they don't get the crown jewel, which is Guyana. Um, so in that world, Chevron is, you know, arguably a little more gas focused than than Exxon is. Certainly, it has growth potential from Kazakhstan. They have the concession until 2033, possible to extend beyond that. Um, and they have a yield of, you know, somewhere between 4 and 5%, which is which is reasonably attractive. But to be fair, um, you know, a lot of their other growth opportunities, for example, deep water Gulf of Mexico, those probably draw a lot more interest from investors if oil's back around $80, $90. And we seem to be slipping, and I think that, too, is weighing on Chevron a little bit today.

And then another one on Chevron too, amidst all of this, the company says, oh, we're going to relocate to Texas from California. Is this the, I mean, while all this is going on, right? While they're under these pressures, while they're trying to figure out this deal, is that the right time for them to be undergoing this type of a move?

Probably not. I mean, they've been hinting at problems with California and telling folks, look, this is not the easiest place to do business, particularly for refining with the environmental restrictions that California places on on refiners in the region. Um, you know, it was argued that this is about well, their customers are located in Houston, but customers have been in Houston for a very long time. I think it has a lot more to do with politics. And so to your point, um, it's a bit of a high wire act to pull off a successful move of the headquarters to Houston while you also have all these other balls in the air. It's not the best timing.

And Stewart, get your thoughts on Exxon too. So there, uh, reports they exceed profit expectations, um, you know, the Pioneer acquisition also there, Stewart. I know it's early days, but how did the synergies look there to you?

Yeah, in contrast to Chevron, Exxon really has the wind at its backs right now. Uh, the Pioneer transaction put a lot of incremental oil into Exxon's coffers this quarter. Um, then you have, of course, their 45% stake in Guyana, which they already own, which is throwing off considerable incremental oil, not just this year, but probably first oil from other other developments in the block in 25, 26, and 27. Uh, those are all likely to come to the four. So Exxon's got, in my opinion, a much better story to tell. Um, and we still, we retained our buy opinion or four stars opinion on on Exxon and raised our target price to 135.

I'm curious to have for Exxon, what you think the biggest risk is.

Um, I mean, I think the biggest risk for Exxon probably is really industry specific. Um, certainly they're about as well provisioned as one can be on a balance sheet. Net debt to cap is, you know, around 6% or thereabouts. Um, but when oil prices suffer, everybody takes it on the chin, uh, including Exxon. So I think that because, you know, a lot of the value that's being created is driven by upstream, uh, your biggest risk is that oil goes south of $60 and everybody starts worrying about, you know, is the dividend going to be preservable, things like that.

Got you. All right, Stewart. Thank you so much for your perspective and analysis. Appreciate it.

Thank you.