Exxon Stands Aparts From Its Peers

Like its integrated peers,

For the year to date, the company is running a deficit that required an increase in debt, but we expect that by next year it can achieve cash flow neutrality at $60/barrel Brent, a feat its peers cannot. Furthermore, cost savings (capital and operating) combined with greater capital flexibility should bring its break-even level down further during the next few years, while the company continues to increase its dividend and maintain share repurchases. While Exxon continues to refrain from providing specific targets, instead invoking its goal of constant improvement, it did reveal an $8 billion reduction for the year to date in capital and cash operating costs and a 10% reduction in upstream unit costs. As a result, the company expects that capital spending for the year will come in below its original guidance of $34 billion.

Exxon's ability to generate cash, thanks to its scale and high-quality integrated operations, sets it apart from peers and keeps it the most defensive of the group. It is not without growth opportunities, however, and we expect it to continue delivering superior returns on capital. Hence, we assign the company a wide moat rating, meaning that it’s a compelling investment through the cycle. That said, we think these factors are largely incorporated into its valuation, and with our fair value estimate unchanged, Chevron is slightly more attractive at current levels.

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