Better Buy for 2022: ConocoPhillips vs. Exxon Mobil

By Nimesh Jaiswal

Oil prices recently declined due to concerns over soaring COVID-19 cases worldwide, potentially sapping fuel demand. However, on Tuesday, oil prices rose to nearly $82 a barrel due to tight supply from the OPEC+ and major economies avoiding severe lockdowns. Recent outages in Libya have also supported prices, and the National Oil Corp said it was suspending exports from the Es Sider terminal. In addition, Russia’s military buildup on the Ukraine border has significant implications for oil and gas prices. Moreover, OANDA analyst Craig Erlam said, “The fundamentals remain bullish for crude again - especially if OPEC continues to struggle to hit its quota as part of the 400,000 barrels per day monthly increases, as demand strengthens.“ So, both ConocoPhillips (COP) and Exxon Mobil Corporation (XOM) should benefit.

COP explores, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. The company primarily engages in conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other production operations. XOM explores for and produces crude oil and natural gas internationally. It operates through Upstream; Downstream; and Chemical segments. The company is also involved in the manufacturing, trade, transport, and sale of crude oil, natural gas, petroleum products, and petrochemicals.

COP has gained 39% gains over the past six and XOM has risen 16.5%. Which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On December 1, 2021, COP announced that it completed the acquisition of Shell Enterprises LLC’s prolific Delaware basin position for $9.5 billion in cash. Ryan Lance, COP’s Chairman and CEO said, “We believe the addition of these high-quality assets improves our underlying business drivers, expands our cash from operations, enhances our ability to deliver higher returns on and of capital, and lowers our average GHG intensity."

On December 13, 2021, XOM and Scepter, Inc. announced that they have agreed to work together to deploy advanced satellite technology and proprietary data processing platforms to detect methane emissions on a global scale. Bart Cahir, senior vice president of unconventional at XOM, said, “This collaboration will enable multiple industries to identify the sources of methane emissions around the world in real-time, so that leak repairs or mitigation solutions can be deployed rapidly."

Recent Financial Results

COP’s total production increased 44.7% year-over-year to 1,544 MBOED for the fiscal third quarter ended September 30, 2021, 2021. The company’s adjusted earnings came in at $2.37 billion compared to a loss of $331 million in the prior-year quarter. Also, its adjusted EPS came in at $1.77 compared to a loss of $0.31 in the year-ago period.

XOM’s revenues and other income increased 59.7% year-over-year to $73.79 billion for the fiscal third quarter ended September 30, 2021, 2021. The company’s net income came in at $6.75 billion compared to a loss of $680 million in the prior-year quarter. Also, its EPS came in at $1.57 compared to a loss per share of $0.15 in the year-ago period.

Past and Expected Financial Performance

COP’s revenue grew at a CAGR of 9.8% over the past five years. Analysts expect COP’s revenue to increase 29.4% for the quarter ending March 31, 2021, and 11.2% in fiscal 2022. The company’s EPS is expected to grow 205.8% for the quarter ending March 31, 2021, and 33.2% in fiscal 2022.

On the other hand, XOM’s revenue grew at a CAGR of 4.1% over the past five years. The company’s revenue is expected to increase 63.4% for the quarter ending March 31, 2021, and 8.1% in fiscal 2022. Its EPS is expected to grow 147.7% for the quarter ending March 31, 2021, and 16.8% in fiscal 2022.

Profitability

XOM’s trailing-12-month revenue is 6.59 times what COP generates. However, COP is more profitable with a gross profit margin and EBITDA margin of 47.51% and 40.14% compared to XOM’s 31.84% and 13.88%, respectively.

Furthermore, COP’s ROA and ROTC of 5.78% and 7.91% are higher than XOM’s 2.49% and 3.63%, respectively.

Valuation

In terms of forward non-GAAP P/E, COP is currently trading at 13.67x, 2.3% higher than XOM’s 13.36x. However, XOM’s forward EV/EBITDA ratio of 6.63x is 20.3% higher than COP’s 5.51x.

POWR Ratings

COP has an overall rating of B, which equates to a Buy in our proprietary POWR Rating system. On the other hand, XOM has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

COP has a B grade for Sentiment, consistent with analysts’ expectations that its EPS and revenue will increase significantly in the upcoming quarter. On the other hand, XOM has a C grade for Sentiment, in sync with analysts’ expectations that its EPS and revenue will increase at a moderate rate next year.

Of the 77 stocks in the Energy - Oil & Gas industry, COP is ranked #15. In contrast, XOM is ranked #46.

Beyond what I’ve stated above, we have also rated the stocks for Momentum, Growth, Stability, Value, and Quality. Click here to view all the COP ratings. Also, get all the XOM ratings here.

The Winner

As the oil deficit remains unresolved and OPEC+ refuses to increase supply significantly, oil prices are expected to remain high with the continued reopening of the economy. While both COP and XOM are expected to gain, I believe it is better to invest in COP now because of its higher profit margin and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Energy - Oil & Gas industry here.


XOM shares rose $0.04 (+0.06%) in after-hours trading Tuesday. Year-to-date, XOM has gained 16.60%, versus a -1.10% rise in the benchmark S&P 500 index during the same period.



About the Author: Nimesh Jaiswal


Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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