U.S. oil majors Exxon Mobil Corp (NYSE:XOM) and Chevron Corporation (NYSE:CVX) both reported impressive third-quarter numbers last week, with each company beating consensus earnings estimates by roughly 15%. In a difficult macroeconomic environment for most companies, a pair of Wall Street analysts said Monday that there may be more upside ahead for Exxon and Chevron.
Morgan Stanley's Take: Morgan Stanley analyst Devin McDermott said Monday that Exxon and Chevron's combined free cash flow in the third quarter was greater than $30 billion, up 20% quarter-over-quarter and exceeding its previous high by about $5 billion.
"Notably, XOM raised its div ~3.5%, underpinned by strong FCF & the benefits of countercyclical growth investments, while CVX continues to target the high-end of its buyback range," McDermott said.
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Exxon's 3.5% dividend hike is its largest since 20189, while Chevron maintained its annual rate of $15 billion in buybacks.
For now, McDermott prefers Exxon over Chevron because of Exxon's potential for outsized free cash flow growth as new projects come online, as well as its greater leverage to downstream revenue.
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Morgan Stanley has an Overweight rating and $114 price target for Exxon and an Equal Weight rating and $196 price target for Chevron.
Bank of America Bullish: Bank of America analyst Doug Leggate also reiterated Buy ratings for both oil majors on Monday but raised his price target for Chevron from $180 to $190 and his target for Exxon from $123 to $136.
Leggate said the third quarter was a bellwether quarter for both oil majors, but operating momentum is clearly swinging in favor of Exxon.
"While we see greater value with XOM, both names continue to offer low-risk leverage to higher long-term oil prices," Leggate said.
Leggate said the tremendous FCF generation for Exxon and Chevron in the current environment has both companies on track to reach zero net debt within the next 12 months. However, Leggate said Exxon remains his top overall stock pick among U.S. oil majors because of its unique potential for free cash flow growth acceleration in coming quarters.
Benzinga's Take: Very few investing themes have worked so far in 2022, but oil and gas has been one of them. Exxon and Chevron's profitability, free cash flow growth and high yields make both stocks attractive investment options, but it seems Morgan Stanley and Bank of America analysts see Exxon as the preferred play at this point.
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