The shares of Occidental Petroleum (NYSE: OXY) currently trade at 20% below pre-Covid levels as observed in January 2020 while the shares of its competitor Exxon Mobil (NYSE: XOM) remain 5% lower. Does that make OXY stock a better pick over XOM? Occidental Petroleum is an independent exploration and production company with operations in the U.S., Middle East, and Colombia, whereas Exxon Mobil is the prominent integrated oil & gas major. As the finances of both companies depend on benchmark prices, lower expectations in the coming years have led to sizable impairment costs and a contraction of their asset base. While OXY stock is a riskier pick due to higher financial leverage, the near-term benchmark price expectations are a boon to the company’s cash flows and de-leveraging targets. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis, Occidental Petroleum vs Exxon Mobil: Industry Peers; Which Stock Is A Better Bet?
1. Revenue Growth
Occidental Petroleum’s growth has been much stronger than Exxon Mobil’s in recent years, with Occidental’s revenues expanding at an average rate of 27% from $10 billion in 2016 to $21 billion in 2019. Exxon Mobil’s revenues have observed an 8% average growth rate from $208 billion in 2016 to $264 billion in 2019. Moreover, Occidental reported a 15% top-line contraction as compared to 31% for Exxon Mobil in 2020.
- Exxon Mobil’s four operating segments, Upstream, Downstream, Chemical, Corporate & Other, contribute 9%, 80%, 10%, and 1% of total revenues, respectively. However, the asset distribution is skewed toward the Upstream business which also generates a major chunk of earnings. The company’s Upstream, Downstream, Chemical, and Corporate & Other segments account for 65%, 18%, 11%, and 6% of total assets, respectively.
- Occidental Petroleum’s three operating segments, Oil & Gas, Chemical, and Midstream & marketing contribute 63%, 18%, and 19% of total revenues, respectively. The company’s Oil & Gas segment is the key earnings contributor with a 78% share of the total asset base.
- Along with revenue declines, Exxon Mobil and Occidental Petroleum reported 25% (y-o-y) and 8% (y-o-y) contraction of the total asset base due to impairments in 2020, respectively.
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2. Returns (Profits)
As both companies incurred sizable impairment charges in the past two years, we compare their cash generation capabilities. In 2018, Exxon Mobil generated $36 billion of operating cash with $290 billion in total revenues – implying an operating cash flow margin of 12.4%. Whereas Occidental Petroleum reported $18.9 billion of total revenues and $7.6 billion of operating cash flow resulting in a margin of 40%.
- Interestingly, Occidental’s cash generation capabilities seem significantly higher than Exxon Mobil, but the difference is largely due to Exxon’s downstream business which operates at a very thin margin. Also, Exxon’s downstream presence makes its product portfolio more diverse and less prone to oil price volatility.
- In 2018, Exxon invested $16 billion in property, plant & equipment and returned $14 billion as dividends to shareholders. Notably, the company returned 40% of cash from operations to shareholders as dividends.
- In 2018, Occidental Petroleum utilized $3.2 billion in investing activities and returned $3.5 billion through dividends & buybacks to shareholders. Thus, the company returned 47% of its operating cash to shareholders.
- In 2019, Occidental acquired Anadarko Petroleum leading to a $28 billion jump in long-term debt obligations. (related: Banking On Renewables? Pick BP Stock Over Exxon)
- Regular dividend payouts have been a key shareholder return policy adopted by the oil & gas industry and Exxon Mobil maintained it even during the pandemic despite impairment charges and an uncertain macroeconomic recovery. On the contrary, Occidental’s high interest expenses led to dividend suspension and divestments to strengthen the balance sheet.
In 2020, Exxon Mobil and Occidental Petroleum reported $47 billion and $35 billion of long-term debt, respectively. Given Occidental’s significantly lower revenues as compared to Exxon Mobil and higher long-term debt, OXY stock is a riskier bet than XOM.
- Higher financial leverage coupled with continued revenue growth is a boon for generating surplus equity returns. However, interest expenses weigh on finances as revenues decline – limiting dividend payouts and capital expenses.
- Thus, Occidental’s higher financial leverage is likely to assist strong cash generation in the current high benchmark price environment. (related: Why Exxon Mobil Stock Is Not A Good Energy Sector Pick)