Stock Analysis & Ideas

EOG, OXY, or XOM: Which is the Top Oil Stock Amid the Ongoing Volatility?

Story Highlights

While oil prices have fallen from the peak levels seen earlier this year, supply constraints due to the energy conflict in Russia could support prices over the near term. We will discuss three oil companies and Wall Street’s opinions about their prospects.

Oil prices have fallen from their March highs as demand concerns amid a possible economic downturn have been a drag. As per Reuters, Goldman Sachs lowered its 2023 oil price forecast by $19 per barrel (on average) for the period from Q4 2022 to Q4 2023, reflecting expectations of lower demand and a strong U.S. dollar. That said, the investment bank continues to have a bullish long-term outlook supported by global supply issues amid the ongoing Russia-Ukraine crisis. Bearing in mind a volatile market backdrop, we will discuss three oil stocks – EOG Resources (NYSE:EOG), Occidental Petroleum (NYSE:OXY), and Exxon Mobil (NYSE:XOM). With the help of TipRanks’ Stock Comparison Tool, we will pick the most favorable oil stock at current levels.

EOG Resources (EOG) Stock

EOG is one of the leading crude oil and natural gas exploration and production companies in the US. Thanks to higher prices and favorable demand trends, the company’s Q2 revenue grew 79% year-over-year to $7.4 billion and exceeded analysts’ expectations. Adjusted EPS increased 58.4% to $2.74, but lagged estimates due to the impact of higher lease and well expenses as well as increased transportation costs.

Looking ahead, EOG sees “constructive long-term demand”, both in the domestic market along the Gulf Coast and internationally. The company is set to announce its Q3 results on November 4. Analysts expect third-quarter adjusted EPS to come in at $4.22, up from $2.16 in the prior-year quarter.

Is EOG a Buy or Sell?

Recently, KeyBanc analyst Tim Revzan initiated coverage of EOG Resources stock with a Buy rating and a price target of $157. The analyst cited “inventory quality and depth, basin and hydrocarbon diversity, and a culture of organic exploration” as the reasons for his bullish view.

Revzan feels that more share buybacks and less attention to special dividends would help drive higher per-share value for EOG. That said, he expects healthy cash returns to continue. Highlighting EOG’s last 12-month yield of 7.4%, Revzan stated that EOG shares are undervalued in his opinion.

Revzan believes that in 2023, EOG has the potential to grow production more than any other large-cap under his coverage. He concluded, “Best-in-class full cycle costs under $19/boe [barrel of oil equivalent] differentiate EOG shares.”

Overall, consensus among analysts is a Strong Buy based on 11 Buys and two Holds. The average EOG stock price target of $150.77 implies nearly 35% upside potential from current levels. Shares have advanced nearly 26% so far this year.

Occidental Petroleum (OXY) Stock

Occidental is an integrated oil and gas company and one of the leading oil producers in the prolific U.S. Permian Basin. Strong energy prices helped the company deliver impressive Q2 results. Adjusted EPS increased considerably to $3.16 from $0.32 in the prior-year quarter.

Strong cash flows have helped the company reduce much of its debt levels, which swelled up due to the acquisition of Anadarko Petroleum in 2019. The company paid down $8.1 billion of its debt in the first six months of the year. Moreover, it repurchased $1.1 billion of shares after initiating a $3 billion share repurchase program in the second quarter.

What is OXY Target Price?

Earlier this month, Citigroup analyst Scott Gruber downgraded OXY stock to a Hold from Buy, but raised the price target to $67 from $65. The analyst feels that the upside potential in the stock “appears modest” given the significant rally this year.

Aside from high oil prices, Occidental stock also gained from the growing interest of Warren Buffett’s Berkshire Hathaway. Berkshire increased its stake in Occidental to 20.2% in August. Also, the Federal Energy Regulatory Commission approved Berkshire’s request to acquire up to 50% stake in Occidental.

All in all, the Street is cautiously optimistic about OXY stock, with a Moderate Buy consensus rating based on five Buys, seven Holds, and one Sell. The Occidental Petroleum stock price prediction of $77.50 implies 26.2% upside potential. Shares have rallied a whopping 112% year-to-date.

Exxon Mobil (XOM) Stock

Exxon is one of the largest integrated oil and gas companies in the world. It is one of the companies that did not pause dividends despite the downturn experienced due to the COVID-19 pandemic.

Infact, Exxon is a dividend aristocrat and has increased its annual dividend for 39 consecutive years. The company returned $7.6 billion to shareholders in the second quarter, including dividends of $3.7 billion. Exxon’s forward dividend yield stands at nearly 4%, which is higher than Occidental’s 0.48% and EOG’s 2.8%. Moreover, the company has repurchased shares worth $6.1 billion in the first half of 2022 and intends to make repurchases up to $30 billion through 2023.

Exxon’s shareholder returns are fueled by its solid cash flows. The company’s Q2 EPS jumped 276% to $4.14, fueled by higher price realizations and refining margins as well as cost controls. Exxon aims to generate over $9 billion in annual cost savings by 2023, compared to 2019.

What is the Target Price for Exxon Stock?

Following investor meetings hosted by Goldman Sachs with Exxon management, the investment bank’s analyst, Neil Mehta, reiterated a Buy rating on XOM stock with a price target of $112.

Mehta explained, “XOM offers differentiated Upstream projects (Guyana, LNG, Permian), a unique business transformation driving the company’s FCF breakeven lower, as well as improving returns on capital employed, driving our Buy rating on the stock.”

On TipRanks, Exxon stock scores a Strong Buy consensus rating backed by 10 Buys and two Holds. The average XOM stock price target of $112.13 implies 26.2% upside potential. Shares have rallied 45% year-to-date.

Conclusion

The spike in energy prices helped these three oil companies deliver strong results in the first half of 2022. Amid the ongoing uncertainty, oil prices are expected to be volatile over the short term. Shares of Occidental and Exxon have significantly outperformed EOG stock year-to-date. That said, Wall Street analysts see higher upside potential in EOG Resources stock from current levels.

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