Exxon Mobil vs. China Petroleum & Chemical: Which Oil & Gas Stock is a Better Buy?
- Jun 10, 2021
Exxon Mobil Corporation (XOM) is a multinational company that explores for, develops and distributes crude oil, natural gas, and petroleum products, electric power generation, and coal and mine operations worldwide. The company also manufactures and markets petrochemicals, fuels, lubricants, and a range of specialty products.
China Petroleum & Chemical Corp. (SNP) is a China-based energy and chemical company that explores for and distributes crude oil and natural gas, and manages chemical operations. The company processes and refines crude oil and offers gasoline, diesel, jet fuel, kerosene, ethylene, synthetic fibers, synthetic rubber, synthetic resins, and chemical fertilizers through wholesale and retail sales networks.
The rapid recovery of major economies combined with continued supply cuts by the world’s major oil producers have led to a boost in oil prices, which hit a $72.66 per barrel two-year high on Wednesday. As coronavirus infection rates in major oil consuming emerging markets such as India and Brazil decline, OPEC+ expects oil demand to rise by six million barrels per day in 2021. The global oil & gas upstream activities market is expected to grow 26.6% to reach $3.34 trillion in 2021. Consequently, we think both XOM and SNP should benefit substantially in the coming months.
SNP has lost 6.1% over the past three months, while XOM has returned 3.7%. But, in terms of their past year’s performance, XOM is the winner with 16.1% gains versus SNP’s 11.6% returns. So, which of these stocks is a better pick now? Let’s find out.
On June 9, 2021, XOM made an oil discovery at Longtail-3 in the Stabroek Block, offshore Guyana. Drilling at Longtail-3 using newly deployed Stena DrillMAX drillship has encountered 230 feet of net pay, including newly identified, high quality hydrocarbon bearing reservoirs below the original Longtail-1 discovery intervals. This, combined with its earlier discovery at Uaru-2, gives XOM the potential to increase its resource estimate within the Stabroek block, demonstrating further growth of this world-class resource and high-potential development opportunities offshore Guyana.
On April 22, XOM and Global Clean Energy, a leading developer of sustainable, non-food energy crops for use in biofuels, expanded their five-year agreement to increase XOM’s purchase of renewable diesel from Global Clean Energy’s biorefinery to up to five million barrels per year. Compared to petroleum-based diesel, this renewable diesel made from non-petroleum feedstocks can reduce greenhouse gas emissions by approximately 40-80%. Amid the rising cry for lower carbon emissions, both companies are focused on bringing renewable fuels to market.
SNP built China’s first carbon neutral gas station in the Jiangsu Province on May 20, 2021. The Jiaze Gas Station Project uses photovoltaic power generation instead of coal-fired power generation and supplies surplus power externally while meeting the station’s power demands. The project is estimated to generate 127,000 to 147,000 kWh of power annually, which can reduce carbon dioxide emissions by 91.2 to 105.6 tons. To contribute towards China’s target of peak carbon emissions by 2030, SNP will lay out 7,000 photovoltaic power generation stations, and build 900 carbon-neutral gas stations over the next five years.
In March, SNP signed a long-term purchase and sales agreement with Qatar Petroleum to purchase two million tons of liquefied natural gas every year for 10 years. Through this LNG supply agreement, SNP is expected to meet domestic demand while progressing towards its goal of carbon neutrality.
XOM’s total revenues for its fiscal first quarter, ended March 31, increased 5.3% year-over-year to $59.15 billion. The company’s pre-tax income came in at $3.59 billion, compared to a $258 million in the prior-year period. Its net income was $2.73 billion for the quarter, compared to a $610 million net loss in the prior-year period. Its EPS has been $0.64, compared to a loss per share of $0.14 in the year-ago period. However, XOM’s oil-equivalent production has decreased 6.4% year-over-year to 3,787 koebd, and its petroleum product sales have decreased 7.7% year-over-year to $4,881 kbd.
For its fiscal first quarter ended March 31, 2021, SNP’s total turnover and other operating revenues increased 3.6% year-over-year to RMB561.22 billion ($87.94 billion). SNP’s operating profit was RMB28.70 billion ($4.49 billion), compared to a RMB26.43 billion ($4.14 billion) net loss in the first quarter of 2020. Its net profit was RMB23.62 billion ($3.70 billion), versus a RMB20.44 billion ($3.20 billion) net loss in the prior-year period. Its EPS was RMB0.15 ($0.02) for the quarter versus a RMB0.16 ($0.03) loss per share in the year-ago period. The company’s oil and gas production has increased 4.2% year-over-year to 117.03 mmboe. Its natural gas production has increased 16.8% year-over-year to 291.60 bcf.
XOM’s EBITDA and EPS declined at CAGRs of 37.1% and 267.8%, respectively, over the past year. The company’s total assets have declined at a 1.5% CAGR over the past three years.
Analysts expect XOM’s revenue to increase 46.2% in the current year, ending December 2021, and marginally in the next year, ending December 2022. Its EPS is expected to increase 238.6% year-over-year for its fiscal year 2021 second quarter. ending June 30, 2021, 1209.1% for the current year and 19.1% next year.
In comparison, SNP’s EBITDA and EPS grew at CAGRs of 34.6% and 210.6%, respectively, over the past year. The company’s total assets grew 4.7% over the past year.
Analysts expect SNP’s revenue to increase 36.5% in the current year, ending December 2021, and 5.7% in the year ending December 2022. Its EPS is expected to increase 10.8% year-over-year for its fiscal year 2021 second quarter, ending June 30, 2021, 110.9% for the current year, but then decline 8.4% next year.
SNP’s trailing-12-month revenue is 1.8 times XOM’s. SNP is also more profitable, with a 3.3% EBIT margin versus XOM’s negative value.
Also, SNP’s respective 9.8%, 2.4% and 3.4% ROE, ROA and ROTC values, compare well with XOM’s negative values.
In terms of non-GAAP forward P/E, XOM is currently trading at 17.59x, which is 147.4% higher than SNP, which is currently trading at 7.11x. SNP’s 0.46x non-GAAP forward PEG is significantly lower than XOM’s 2.91x.
Also, in terms of forward EV/EBITDA, XOM’s 7.53x is 90.2% higher than SNP’s 3.96x.
While XOM has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, SNP has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Value, SNP has been graded a B, which is consistent with its lower-than-industry valuation ratios. The company’s 0.46x non-GAAP forward PEG is 62.1% lower than the 1.22x industry average. However, XOM’s has a D grade for Value, which signifies its overvaluation versus its peers. The company has a 2.91x non-GAAP forward PEG, which is 137.6% higher than the 1.22x industry average.
SNP has a B grade for Stability, which is in sync with the stock’s 0.99 beta. In comparison, XOM has a C grade for Stability, consistent with its 1.41 beta.
Of 95 stocks in the Energy – Oil & Gas industry, XOM is ranked #53, while SNP is ranked #9.
Beyond what we’ve stated above, our POWR Ratings system has also rated both XOM and SNP for Growth, Momentum, Quality and Sentiment. Get all XOM ratings here. Also, click here to see the additional POWR Ratings for SNP.
Both XOM and SNP are well-positioned to deliver solid returns in the near-term as global economies recover from the pandemic-led recession and resume manufacturing and industrial production. However, based on its high profitability ratios and relatively lower valuation, SNP appears to be a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Energy – Oil & Gas industry.
XOM shares fell $0.03 (-0.05%) in after-hours trading Thursday. Year-to-date, XOM has gained 57.07%, versus a 13.67% rise in the benchmark S&P 500 index during the same period.
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...