Stock Analysis & Ideas

Which Oil Stock is a Better Pick Following Q2 Results?

Story Highlights

Concerns regarding a slowdown in demand due to a looming recession have been putting pressure on oil stocks over recent days. However, supply constraints amid geopolitical concerns could keep energy prices at high levels and benefit oil stocks. In this article, we’ll discuss Wall Street analysts’ opinions about a leading oilfield services company and two integrated oil and gas companies.

Oil prices soared following the reopening of the economy and spiked further due to the Ukraine-Russia war. However, oil prices have been under pressure recently due to demand concerns amid a potential economic slowdown. Oil stocks have enjoyed a remarkable run this year and have outperformed the broader market despite the recent volatility. A tight global oil supply market and an expected decline in demand due to an impending recession might result in continued volatility for oil stocks. Bearing that in mind, we used the TipRanks Stock Comparison Tool to compare Schlumberger, Exxon Mobil, and Chevron, to pick the stock that could deliver higher returns.  

Schlumberger NV (NYSE: SLB)

Schlumberger is a leading oilfield services company, which provides technology and solutions for production, drilling, and processing to the oil and gas industry. Steady growth in exploration and offshore activity amid a favorable demand backdrop helped Schlumberger deliver market-beating Q2 results.

Schlumberger’s Q2 revenue grew 20% year-over-year to $6.8 billion. Strong top-line growth and improved pricing drove a 67% rise in adjusted EPS to $0.50. The company raised its full-year outlook as it expects a multi-year upcycle to continue to gain momentum. It now expects full-year revenue growth in the high teens, implying revenue of at least $27 billion.

Recently, Benchmark analyst Douglas Becker upgraded Schlumberger from a Hold to Buy, with a price target of $55. Becker upgraded the stock as he sees a “positive inflection point in international producer spending and activity.”

Further, the analyst anticipates Schlumberger to achieve its EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) margin target of 25% one quarter early in Q323. Even in the case of a recession, based on his analysis, the analyst expects “international activity to be resilient” and the company’s 2023 EBITDA to rise 8% to about $6.7 billion.

Overall, Schlumberger scores a Strong Buy consensus rating backed by an impressive 11 unanimous Buys. At $50.82, the average price target implies 38.51% upside potential from current levels.

Exxon Mobil Corporation (NYSE: XOM)

Integrated oil and gas company Exxon Mobil’s Q2 revenue surged nearly 71% to $115.7 billion but lagged analysts’ expectations. However, adjusted EPS jumped 276% to $4.14 and crushed the consensus estimate. Soaring energy prices and margins, increased production, and cost control drove the phenomenal rise in earnings. Exxon is on track to deliver over $9 billion in savings by 2023.

Exxon continues to invest in capacity expansion to address a tight supply market. The company expects to increase its refining capacity on the U.S. Gulf Coast by over 17% or 250,000 barrels per day in Q123. As per Exxon, this represents the industry’s “largest single capacity addition” in the U.S. since 2012.

Bank of America Securities analyst Doug Leggate believes that Exxon’s upbeat Q2 earnings reflected “the momentum building behind its portfolio investment over the past six years.” The analyst highlighted that Exxon also gained from improved operating leverage, driven by a portfolio mix with a higher downstream exposure as well as over $6 billion of cost-cutting over the past three years.

Leggate expects Exxon’s free cash flow growth to continue to be ahead of the oil majors. Furthermore, he expects share buybacks to likely accelerate once the management reaches its cash balance targets. Based on his investment thesis, Leggate increased the price target for Exxon stock to $123 from $120, and reiterated a Buy rating. 

All in all, the Street has a Strong Buy consensus rating on Exxon Mobil stock based on 11 Buys and three Holds. The average price target of $109.65 implies 16.56% upside potential from current levels.  

Chevron Corporation (NYSE: CVX)

Integrated energy company Chevron smashed analysts’ Q2 estimates as a favorable demand backdrop and higher energy prices helped drive a 240% rise in its adjusted EPS to $5.82. Revenue grew nearly 83% to $68.8 billion. Robust Q2 performance helped the company strengthen its balance sheet and bring down the debt ratio to below 15%.

 Furthermore, Chevron raised the top-end of its share repurchase guidance from $10 billion to $15 billion. The company is also enhancing its supply capacity by investing in the expansion of both its traditional and new energy business lines.

In reaction to the stellar results, Leggate raised his price target for Chevron stock to $180 from $178, and reiterated a Buy rating. The analyst attributed the company’s Q2 performance to “the combination of capital discipline, timely acquisitions, and the operational leverage enabled by an oil-weighted portfolio that dominated earnings again this quarter.”

Overall, the Street is cautiously optimistic on Chevron stock, with a Moderate Buy consensus rating based on nine Buys, six Holds, and one Sell rating. The average price target of $178.69 implies 12.28% upside potential from current levels.  

Conclusion

Exxon Mobil stock has risen close to 54% year-to-date, significantly outperforming Schlumberger (up 22.5%) and Chevron (up nearly 36%) stocks. However, Wall Street analysts are currently very bullish on Schlumberger and see higher upside potential in the stock compared to Exxon Mobil and Chevron.

Despite concerns over an economic downturn, favorable break-even prices and the need to boost global oil and gas production capacity are expected to support higher upstream exploration and production spending. Higher upstream spending bodes well for oilfield services companies like Schlumberger.    

Disclosure

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