Exxon Mobil Corporation (XOM) and Shell plc (SHEL) are prominent integrated oil and gas companies. XOM explores, develops, and distributes crude oil, natural gas, and petroleum products, electric power generation, and coal and mine operations through its Upstream; Downstream; Chemical; and Corporate and Financing segments. It also offers petrochemicals and a range of specialty products.
Based in London, U.K., SHEL explores for and markets crude oil, natural gas, and NGLs, produces gas-to-liquids fuels and other products, and operates upstream and midstream infrastructure necessary to deliver gas to market. It generates electricity through wind and solar resources, produces and sells hydrogen, and provides electric vehicle charging services and electricity storage.
With the lifting of China’s lockdowns, rising demand for energy amid the tight supply due to the sanctions on Russia and limited OPEC+ production levels have been keeping the prices high. Though OPEC+ has decided to increase output in July and August, the supply-demand imbalance is not expected to reduce anytime soon.
Therefore, integrated oil and gas companies will benefit substantially in the upcoming months. Investors’ interest in this space is evident from the Energy Select Sector SPDR ETF’s (XLE) 33.7% gains over the past six months versus the SPDR S&P 500 Trust ETF’s (SPY) 20% loss.
While SHEL gained 17.1% year-to-date, XOM surged 43.6%. XOM is a clear winner with 37.7% gains over the past year versus SHEL’s 24% returns. But which of these stocks is a better pick now? Let’s find out.
Latest Developments
On June 21, 2022, XOM and QatarEnergy signed an agreement to develop Qatar’s North Field East project further, which will expand the nation’s annual LNG capacity from 77 million tons to 110 million tons by 2026. XOM is awarded 25% interest in the North Field East joint venture. This will help XOM expand its operations in Qatar.
On June 1, 2022, SHEL’s Shell Retail and Convenience Operations LLC completed the acquisition of certain company-owned fuel and convenience retail sites from the Landmark Group, an Indian multinational conglomerate based in Dubai.
This acquisition helps SHEL grow its retail footprint in the United States by offering expanded fueling options (including EV charging, hydrogen, biofuels, and lower-carbon premium fuels) and allowing for the growth of non-fuel sales through an enhanced convenience offering.
Recent Financial Results
XOM’s total revenues and other income for its fiscal 2022 first quarter ended March 31, 2022, increased 53% year-over-year to $90.50 billion. The company’s pre-tax income came in at $8.56 billion for the quarter, up 138.2% from the prior-year period.
Its operating income came in at $2.88 billion, representing a 7.2% rise from the prior-year period. While its net income increased 100.7% year-over-year to $5.48 billion, its EPS increased 100% to $1.28. As of March 31, 2022, the company had $11.07 billion in cash and cash equivalents.
XOM paid a $0.88 per share quarterly cash dividend on June 10, 2022. The stock pays a $3.52 per share dividend annually, delivering a 4.01% annual yield.
For the fiscal 2022 first quarter ended March 31, 2022, SHEL’s revenue increased 51.3% year-over-year to $84.20 billion. The company’s pre-tax income came in at $10.78 billion for the quarter, increasing 30.8% from the prior-year period.
SHEL’s adjusted earnings came in at $9.13 billion, up 182.3% from the year-ago period. Its adjusted EPS came in at $1.20, indicating a 185.7% year-over-year improvement. As of March 31, 2022, the company had $38.36 billion in cash and cash equivalents.
SHEL will pay a $0.25 quarterly cash dividend on June 27, 2022. The stock pays a $0.98 per share dividend annually, translating to a 3.93% yield.
Past and Expected Financial Performance
Over the past three years, XOM’s levered free cash flow has increased at 46.7%, but its total assets declined at a marginal CAGR.
XOM’s EPS is expected to increase 92.9% year-over-year in fiscal 2022, ending December 31, 2022, and decline 13.2% in fiscal 2023. Its revenue is expected to grow 57.4% in fiscal 2022 and decline 10.2% in fiscal 2023.
Over the past three years, SHEL’s total assets and levered free cash flow have grown at 1.1% and 5.1% CAGRs, respectively.
Analysts expect SHEL’s EPS to increase 87.1% year-over-year in fiscal 2022, ending December 31, 2022, and 0.5% in fiscal 2023. Its revenue is expected to grow 32.8% year-over-year in fiscal 2022 and decline 1.8% in fiscal 2023.
Valuation
In terms of non-GAAP forward PEG, XOM is currently trading at 2.11x, 139.8% higher than SHEL’s 0.88x. In terms of forward EV/Sales, SHEL’s 0.64x compares with XOM’s 1.06x.
Profitability
XOM’s trailing-12-month revenue is 1.1 times that of SHEL’s. Moreover, XOM is also profitable, with a 31.8% gross profit margin versus SHEL’s 24.4%.
Furthermore, XOM’s ROE, ROA, and ROTC of 15.6%, 6.1% and 9.3% compare with SHEL’s 12.8%, 5% and 7.5%, respectively.
POWR Ratings
While SHEL has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, XOM has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both XOM and SHEL have been graded an A for Momentum, consistent with their impressive price performance.
SHEL has been graded a B in Sentiment, which is in sync with analysts’ favorable earnings growth expectation. SHEL’s EPS is expected to grow 0.5% year-over-year to $9.37 for fiscal 2022 ending December 31, 2022. XOM’s D grade for Sentiment reflects its weak revenue estimated by analysts. The consensus EPS estimate of $9.01 for XOM’s fiscal 2022 ending December 31, 2022, represents a 13.2% decline from the prior-year period.
Of the 100 stocks in the B-rated Energy - Oil & Gas industry, SHEL is ranked #7, while XOM is ranked #63.
Beyond what we have stated above, our POWR Ratings system has graded SHEL and XOM for Growth, Quality, Stability, and Value. Get all SHEL ratings here. Also, click here to see the additional POWR Ratings for XOM.
The Winner
Rising energy prices should benefit SHEL and XOM. Just like oil, although shares of XOM have surged significantly, a relatively lower valuation of SHEL makes it a better buy now.
Our research shows that the odds of success increase if one invests in 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 were unchanged in after-hours trading Thursday. Year-to-date, XOM has gained 42.24%, versus a -19.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
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.
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