Please ensure Javascript is enabled for purposes of website accessibility

Better Buy: ConocoPhillips vs. ExxonMobil

By John Bromels - May 8, 2018 at 6:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These two oil industry giants have underperformed the market in recent years. Which is the best bet to outperform?

If you're looking for a compelling oil and gas industry investment, why not start at the top? The biggest U.S. oil and gas company, ExxonMobil (XOM 1.98%), had been outperforming the biggest U.S. independent oil and gas exploration and production company, ConocoPhillips (COP 3.44%), for years as the oil price downturn hurt profits.

Recently, though, the shoe has been on the other foot, as strong oil prices have juiced ConocoPhillips' returns and ExxonMobil's production has cooled. Let's take a closer look to find out which of these titans is the better buy right now. 

Oil pumps in silhouette against an evening sky

Oil industry giants ExxonMobil and ConocoPhillips are both benefiting from an upward trend in oil prices. Image source: Getty Images.


In some cases, comparing Exxon and Conoco is like comparing apples and oranges. As an integrated oil major, ExxonMobil is not only much, much larger than ConocoPhillips, with a market cap of $331.1 billion to Conoco's $76.8 billion, but it also has a lucrative refining and marketing business that Conoco lacks. Given those advantages, ExxonMobil's business weathered the oil price downturn of the last few years far better than its smaller industry peer.

Those advantages translate into better returns for ExxonMobil. Return metrics -- including return on equity, return on invested capital, and return on capital employed -- are a measure of how effectively management is deploying the cash at its disposal. Here's how the companies' return metrics have fared over the last five years:

XOM Return on Capital Employed (TTM) Chart

XOM Return on Capital Employed (TTM) data by YCharts.

Even before the downturn, Exxon's returns were better than Conoco's, and while both companies' returns tanked in 2015, Conoco's were hit far more severely. This isn't surprising, as low oil prices are harder on drillers than on refiners and marketers. With oil prices on the rise again, so are Conoco's returns, but they're still lagging far behind Exxon's. This one's no contest.

Winner: ExxonMobil


The recently released Q1 2018 earnings reports from both companies give us an opportunity to check out how each one is faring with oil prices above $65 per barrel. Unsurprisingly, both are doing quite well:

Metric ExxonMobil Q1 2018

Change (YOY)

ConocoPhillips Q1 2018 Change (YOY)
Revenue $68.2 billion 16.2% $9 billion 20%
Earnings per share $1.09 15% $0.75 59.6%
Production volumes 3.9 million BOE/D (6%) 1.2 million BOE/D 4%
Operating cash flow $8.6 billion 3.6% $2.4 billion 34%

Data sources: Company earnings releases. YOY = year over year. BOE/D = barrels of oil equivalents per day.

Aside from Exxon's production volumes -- which have been slowly declining for years -- both companies are growing. However, ConocoPhillips is growing both its top and bottom lines faster than Exxon, which again is unsurprising given its smaller size, and how much the oil price downturn impacted the company. 

However, Conoco's ability to grow revenue, earnings, and cash flow by leaps and bounds this quarter -- crushing analysts' estimates in the process, by the way -- bodes well for investors, as does its ability to grow production while oil prices are relatively high. 

Winner: ConocoPhillips


With one win apiece, it's clear that Exxon and Conoco are pretty evenly matched. That extends to other metrics as well. For example, while Exxon has always had a low amount of debt compared to its peers, Conoco has been recently working hard to decrease its high debt load, paying down $2.7 billion of debt in the most recent quarter alone. Exxon's dividend yield is higher, and more stable, but Conoco's share price seems likelier to increase. 

Ultimately, though, the question is which is the better buy, and that means we should look at the companies' valuation metrics. Looking backwards can be a bit dicey because ConocoPhillips didn't always post positive quarterly earnings during the price downturn. But there are some metrics we can use for comparison.

For example, we can look at forward P/E, which puts ExxonMobil just a hair ahead of Conoco, at 17.1 to 18.3 (lower is better). Likewise, looking at trailing enterprise value to EBITDA, Exxon comes out ahead again, 9.6 to 12.9. We can also use dividend yield as a proxy for valuation if we look at how today's yield compares to the company's historic yield (a high comparative yield may indicate the company is undervalued). Doing that comparison, we see that Exxon's 4% current yield is the highest it's been since the 1990s. Meanwhile, Conoco's yield of 1.65% is the lowest it's been since at least the 1980s. 

All of this suggests pretty strongly that ExxonMobil is cheaper than ConocoPhillips right now.

Winner: ExxonMobil

And the winner is...

With better returns and a lower valuation -- not to mention a much higher dividend yield -- ExxonMobil is our winner. That's not to say, though, that ConocoPhillips is a bad company. In fact, it's making impressive progress in putting the problems it encountered during the oil price downturn behind it, by paying down debt, increasing its dividend, and unloading underperforming assets. 

Both companies are likely to outperform if oil prices continue to surge. But ExxonMobil looks to be the better buy today.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$86.90 (1.98%) $1.69
ConocoPhillips Stock Quote
$90.91 (3.44%) $3.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.