An increase in oil prices is feasible given the optimistic analyst projections, concerns about supply disruptions, and stability in oil prices brought about by OPEC+ endeavors. In this piece, I evaluated Exxon Mobil Corporation (XOM) and Delek US Holdings, Inc. (DK) to determine which one would produce potentially higher returns in 2024.
In the fourth quarter, U.S. crude oil production experienced a substantial deceleration, contrasting with the upward trajectory of natural gas production. The Dallas Fed Energy Survey revealed a noteworthy decline in the industry’s production index, plummeting from 26.5 in the third quarter to a mere 5.3 in the current quarter.
Conversely, natural gas exhibited a modest rise, with the index edging up from 15.4 in the third quarter to 17.9 in the fourth.
Despite the recent moderation, commodity analysts project an optimistic outlook for 2024. Their bullish sentiment hinges on robust demand. Leading U.S. banks anticipate a median Brent price of $85 in 2024, underscoring expectations of demand expansion and concerns about potential supply disruptions.
Fitch Ratings also anticipates that the global oil and gas sector will maintain its performance in 2024, mirroring and surpassing mid-cycle levels observed in 2023. The outlook is characterized by the expectation of consistently elevated and stable year-on-year oil prices attributed to the ongoing production curtailments by OPEC+.
Furthermore, the U.S. Energy Information Administration (EIA) predicts an upward trajectory for Brent crude oil spot prices. The forecast indicates a shift from an average of $78 per barrel in December to an anticipated average of $84 per barrel during the first half of 2024.
In terms of price performance, XOM has declined 3.1% over the past month, while DK plunged 3.8% during the same period. Moreover, XOM witnessed a 13% plunge over the past three months, while DK plummeted 10.1% over the same duration.
However, XOM declined 1.2% over the past nine months, closing the last trading session at $101.27, whereas DK has gained 16.9% during the same period, closing the last trading session at $26.44.
But which Energy – Oil & Gas stock could be a better pick? Let’s find out.
Recent Developments
On November 13, XOM commenced lithium drilling in Arkansas, aiming to establish itself as a key U.S. lithium supplier for EV batteries by 2030. The strategic move aligns with the global push for innovative technologies to enhance ultralight metal production, marking a significant step in XOM’s vision.
In its fiscal third-quarter release, DK affirmed its commitment to fortifying its robust groundwork and achieving notable outcomes. The company strategically diminished its debt by $175.6 million while concurrently elevating dividends.
Notably, the board sustained a pattern of growth in the fourth quarter by increasing the quarterly dividend to $0.24 per share for the fifth consecutive quarter. This financial trajectory exemplifies DK’s steadfast dedication to financial health and shareholder value.
Recent Financial Results
For the fiscal third quarter that ended September 30, 2023, XOM’s total revenues and other income decreased 19% year-over-year to $90.76 billion. Net income attributable to XOM and earnings per common share declined 53.9% and 49% from the prior year’s period to $9.07 billion and $2.27, respectively.
As of September 30, 2023, the company’s current assets stood at $101.14 billion, compared to $97.63 billion as of December 31, 2022.
For the third quarter that ended September 30, 2023, DK’s operating income increased 324% year-over-year to $224.70 million. Its net income grew 710.1% from the year-ago value to $136.10 million. Furthermore, income per share stood at $1.97, registering a significant rise from the prior year’s period.
Also, the company’s cash inflow from operating activities increased 232.3% from the prior year’s period to $432.60 million.
Past Financial Performance
Over the past three years, XOM’s revenue increased at a CAGR of 21.4%. In addition, its total assets grew at a CAGR of 1.3% over the same time frame.
DK’s revenue rose at a 31.1% CAGR over the past three years. Furthermore, its total assets increased at a CAGR of 6.4% during the same period.
Valuation
In terms of forward P/E, DK is trading at 9.46, 15.8% lower than XOM, which is trading at 11.23x. Moreover, DK’s forward EV/Sales of 0.24x compares with XOM’s 1.22x. Furthermore, DK’s forward EV/EBITDA of 3.74x is 35.7% lower than XOM’s 5.82x.
Profitability
XOM’s trailing-12-month revenue is 20.2 times that of what DK generates. Moreover, XOM is more profitable, with a trailing-12-month gross profit margin of 33.87%, compared to DK’s 6.18%. Also, XOM’s trailing-12-month EBITDA and net income margin of 17.85% and 11.74% compare with DK’s 3.39% and $0.38%, respectively.
POWR Ratings
XOM has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, DK has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. XOM has a D grade for Value, in sync with its higher-than-industry valuation. In terms of forward EV/EBITDA and forward Price/ Cash Flow, the stock is trading at 5.73x and 7.38x, 6.6% and 61.4% higher than the industry averages of 5.38x and 4.57x, respectively.
DK, on the other hand, has a B grade for Value, in sync with its discounted valuation. In terms of forward EV/EBITDA and forward Price/ Cash Flow, DK is trading at 3.74x and 2.31x, 30.5% and 49.4% lower than the industry averages of 5.38x and 4.57x, respectively.
Of the 84 stocks in the A-rated Energy – Oil & Gas industry, XOM is ranked #50, while DK is ranked #14.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, Quality and Sentiment. Click here to view XOM’s ratings. Get all DK ratings here.
The Winner
While both XOM and DK could benefit from the rise in oil prices, DK stands out as a superior investment choice compared to XOM. DK boasts superior financial performance, cheaper valuation, and a better track record of growth, making it a compelling buy in the current landscape.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Energy – Oil & Gas industry here.
What To Do Next?
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XOM shares were trading at $101.03 per share on Thursday afternoon, down $0.24 (-0.24%). Year-to-date, XOM has declined -5.28%, versus a 24.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...
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