What to Expect From Earnings Out of Energy Giants Exxon, Chevron

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Two of the world’s largest energy companies, Chevron Corp.  (CVX) and Exxon Mobil Corp. (XOM) , are set to report fourth-quarter financial results before the opening bell on Friday, Feb. 2, as oil markets extended gains with investors betting on the rising price of crude.

The Street breaks down what Wall Street is expecting from the two U.S. supermajor oil companies.

Chevron

The San Ramon, Calif.-based company is anticipated to report adjusted fourth-quarter earnings of $1.23 per share on revenue of $37.37, according to analysts surveyed by FactSet Research Systems Inc.

“We think Chevron will report seasonally stronger cash flows in the fourth quarter, driven by higher income, increased affiliate distributions, fewer deferred tax headwinds and a seasonal reversal of working capital tailwinds,” said J.P Morgan analyst Phil Gresh.

Gresh estimated that free cash flow for the period would be $3.4 billion, compared to $2.15 billion in the third quarter.

Chevron’s upstream business unit is expected to improve for the fourth quarter sharply. J.P. Morgan forecasts adjusted net income of $2.2 billion, while Credit Suisse expects a profit of about $2.1 billion, which would be an increase from $709 million in the third quarter and from $930 million a year ago.

The company’s downstream segment, however, is expected to decline. “Our Downstream income estimate of about $775 million is down 32% quarter over quarter on lower margins (as well as lower capture rate from rising oil prices,” Credit Suisse analysts, including William Featherston, wrote in a Jan. 22 research note. Credit Suisse has a Neutral rating on Chevron shares with a $130 price target.

Fourth-quarter production is expected to climb slightly from the third quarter. Credit Suisse estimated production of 2.73 million barrels of oil equivalent, below the consensus estimate of 2.81 million barrels of oil equivalent. J.P. Morgan also guided below consensus at 2.80 million barrels of oil equivalent.

For the year ahead, Chevron is expected to maintain its 2018 capital expenditures budget of $18.3 billion and disclose 2018 production guidance of 2.9 million barrels of oil equivalent, Credit Suisse said.

Chevron also announced on Wednesday a four-cent increase to its dividend, bringing the yield up to 3.57%, “which compares with Exxon at 3.53%,” noted J.P. Morgan analyst Phil Gresh. The firm rates Chevron stock at Overweight.

Following the earnings announcement on Friday, Chevron will host a conference call with analysts at 11 a.m. EST.

Chevron shares rose 0.2% to close at $125.63 on Thursday.

Exxon

The Irving, Texas-based company is expected to report adjusted fourth-quarter earnings of $1.03 per share on revenue of $71.94 billion, according to FactSet.

“We see the potential for a modest beat in the fourth quarter, but with results that should clearly be the best of the year, given upstream price effects (partially offset by seasonal refining headwinds),” said J.P. Morgan’s Gresh.

For the fourth quarter, Exxon is expected to report production of 4.15 million barrels of oil equivalent. J.P. Morgan is guiding slightly higher at 4.19 million barrels of oil equivalent.

Exxon’s upstream segment, like Chevron, is expected to produce stronger results than the previous quarter. Credit Suisse forecasted upstream income of $2.5 billion, while J.P. Morgan estimated net income of $2.7 billion, both of which are an increase from $1.6 billion during the third quarter.

As for the downstream business, J.P. Morgan predicted net income of $1.07 million, down from $1.53 million in the third quarter. Credit Suisse came in slightly above that estimate at $1.25 billion.

“With Chevron having outperformed Exxon by more than 30% since the third quarter of 2016 results, we ask what it will take for Exxon to turn around its relative underperformance,” wrote BMO Capital Markets analyst Brendan Warn in a Jan. 26 research note. “We believe a step up in the Permian and high-grading of lower-margin regions, such as Canada, in the upstream may be necessary to turn this underperformance around.”

The supermajor oil company with a market capitalization of $377 billion announced on Tuesday, Jan. 30, plans to triple its oil and gas production in West Texas’ Permian Basis by 2025 and will spend $2 billion to expand a crude storage terminal there.

Exxon will host a conference call to discuss the financial results at 9:30 EST on Friday.

Shares of Exxon rose 2.1% to close at $89.12.

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