West Texas’s Permian Basin is the key driver for shares of both Chevron Corp. and Exxon Mobil Corp., but Chevron has an edge over Exxon due to its “superior” cash position.
That’s from analysts at Barclays, led by Jeanine Wai, who on Monday started covering Chevron CVX, +1.45% and Exxon XOM, +1.69% shares. They rated Chevron the equivalent of a buy rating, and Exxon the equivalent of neutral.
Chevron is “well positioned to both return significant (free cash flow) to shareholders,” the analysts said. And, while the stock has outperformed Exxon’s by 11% over the past year, it still trades at a discount.
Exxon has taken a different approach that the analysts said will “eventually pay off,” but one that leaves a near-term cash flow deficit after dividend at oil prices under $70 in international markets.
The Permian, meanwhile, is “the largest driver of medium-term production growth” for both energy giants, the Barclays analysts said.
“Energy currently is a one big ‘Show-me Story’ and the Permian is coming up on FCF inflection for both names,” they said.
Exxon is targeting its Permian holdings as cash-flow positive in 2021 at $60 a barrel for Brent crude while Chevron targets the same scenario for 2020 at $55 a barrel for Nymex-traded WTI oil, the analysts said.
The energy sector was among the top gainers on Monday’s stock-market rally, but lags behind the key indexes this year, up 0.6%. That mirrors the share performances of both companies: Chevron has gained 8% this year, and Exxon has gained 1.5%.
In comparison, the S&P 500 index SPX, +1.35% has risen 17% and the Dow Jones Industrial Average DJIA, +1.13% 12% in the same period.
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