Will ExxonMobil and Chevron be able to turn around next year as energy prices plummet in 2023?

Zhitong App noticed that the stock prices of American oil giants Exxon Mobil (XOM.US) and Chevron (CVX.US) have fallen this year, with the benchmark energy index also dropping by 4.3%. This is due to the turbulent macroeconomic environment, internal operational challenges, and fluctuations in crude oil prices in 2023 that both companies have faced.

As of the close of trading on Monday, Exxon Mobil's stock price has fallen by 3.3% year-to-date, while Chevron's stock price has dropped by 13%, a far cry from the 80.5% and 55.9% gains in 2022.

In their recent quarterly reports, both companies have also shown poor profitability. Exxon Mobil's net profit and earnings per share in the third quarter have dropped by more than half, from $19.66 billion and $4.68 per share in the same period last year to $9.07 billion and $2.25 per share. Revenue also declined by 19% YoY to $90.76 billion, falling short of Wall Street's expectations. This is mainly due to a nearly 60% decrease in natural gas monetization and a 14% decrease in crude oil monetization.

Chevron's net profit in the third quarter has dropped from $11.2 billion ($5.78 per share) in the same period last year to $6.5 billion ($3.48 per share), mainly due to a decline in upstream monetization and refined oil sales profit margin.

However, Wall Street analysts continue to have a very positive outlook on these two stocks, with no one giving a sell rating. For Exxon Mobil, 15 analysts have given a "buy" rating, including 10 "strong buy" ratings. 19 analysts recommend "buying" Chevron, including 11 "strong buy" ratings.

In terms of mergers and acquisitions, both companies have been active this year. Exxon Mobil has decided to acquire Pioneer Natural Resources for $59.5 billion, doubling its foothold in the Permian Basin and making it a leading energy company in the basin. Chevron has decided to collaborate with Hess Corporation in a $53 billion all-stock transaction, adding coveted assets in the Stabroek Block in Guyana, as well as assets in Bakken and the Gulf of Mexico.

In the past two years, these two companies have also contributed to the overall earnings per share growth of the top 20 constituents of the S&P 500 index, although the contribution is small. Since January 2022, the earnings per share of the top 20 companies in the S&P 500 index have increased by 10.6%. Exxon Mobil and Chevron have contributed 0.42% and 0.13%, respectively.

Looking ahead to 2024, analyst Steven Fiorillo wrote in a report on December 13th that Exxon Mobil is an attractive investment choice due to its "strong balance sheet, declining stock price, and potential for dividend growth in an industry rotation towards dividend stocks."

"I believe Exxon Mobil's stock is undervalued below $100, as its dividend yield is close to 4%. Exxon Mobil's goal is to increase its earnings and cash flow by approximately $14 billion over the next four years, and based on the price of Brent crude, its remaining cash potential for the entire year of 2027 could exceed $80 billion." Shareholders will receive returns as billions of dollars will be used for buybacks every quarter, and the high dividends will continue to grow.

According to Goldman Sachs' Americas Energy Report on December 15th, for Chevron, improving profit execution, regularly updating Tengiz, continuing to commit to capital returns throughout the cycle, and having an attractive balance sheet should drive outstanding performance in 2024.

Goldman Sachs also pointed out that one key factor for Chevron's underperformance this year is the continuously rising project costs of Tengiz, which have increased by about 3%-5%.

Goldman Sachs expects Brent crude oil prices to be between $70 and $90 per barrel in 2024, against the backdrop of increased supply in the United States.

However, JPMorgan Chase expects Brent crude oil prices to remain relatively flat in 2024, averaging around $83 per barrel, and to further decline by 10% in 2025. Morgan Stanley expects Brent crude oil prices to reach $85 per barrel next year, while Bank of America's average guidance price is $90 per barrel.