Exxon (XOM) and Chevron (CVX) posted weak quarterly earnings that disappointed investors. Shareholders should remain bullish. Both firms will produce strong cash flow in the quarters ahead.
Exxon reported revenue of $82.91B, down by 28.3% Y/Y. It will not slow its capital and exploration spending of $23B - $25B this year.
Chevron posted revenue falling by 28.9% to $48.9 billion. It, too, expects strong capex. In Q2, Chevron’s capex rose by 18% Y/Y.
Both firms will continue rewarding shareholders through dividends and stock buybacks. It will distribute its strong free cash flow, limiting the downside risks for its share price.
Both firms are cutting costs. After oil prices rose to around $80/bbl, profit margins should expand in the coming quarters. If oil prices fall, the energy giants are in the strongest position to sustain positive earnings.
Investors should expect XOM and CVX stock to trade in a range. Chances are high that the rising oil prices will continue. Equity markets do not expect a global recession. Moreover, China’s economic slowdown in 1H/2023 capped energy prices. As China’s government introduces many policies to jumpstart its economy, energy demand will rise.
XOM and CVX are the lowest-risk energy plays to participate in the global growth ahead.
