The oil majors are soaring. ExxonMobil Holdings (XOM +1.34%) posted net income of $14.5 billion for the second quarter, more than double the $7.1 billion profit it had a year ago. Chevron's (CVX +1.02%) net income of $12 billion for the quarter was almost 400% higher than the year-ago quarter.
Chevron beat Wall Street's earnings estimates by $0.50 a share, at $6.06. Exxon, meanwhile, fell $0.08 short of estimates, posting adjusted earnings of $3.52 a share. The company said difficulties in its refining business were to blame.
Still, the increase in net income at the two oil behemoths is stunning. And both companies handily beat analysts' revenue estimates. Of course, higher oil prices resulting from the war in the Persian Gulf and the closure of the Strait of Hormuz, through which about one-fifth of the world's oil flows, are a huge part of that.
And both companies seem to be firing on all cylinders. So, the question is, which one is the better investment right now? I like Chevron. Here's why.
Image source: Getty Images.
Why? In a word, refining.
I recently wrote about how refining stocks are having a banner year. They're up about 58% year to date, as measured by the VanEck Oil Refiners ETF (CRAK +1.49%). That's because there's a global shortage of refining capacity, which drives up the prices of products like gasoline and jet fuel and increases refiners' profit margins.
ExxonMobil and Chevron are not in that ETF, as it's a pure play on refining, holding only companies that generate at least half of their revenue from oil refining.
NYSE: XOM
Key Data Points
That said, both oil majors have major refining operations in addition to their upstream (exploration and extraction) and marketing and sales operations. And while ExxonMobil generated refining profits of $4.1 billion in the second quarter, it was far below the $5.37 billion that Wall Street expected. The miss, the company said, was due to maintenance problems.
Meanwhile, Chevron's refining profit soared from $737 million in the second quarter last year to $4.9 billion in Q2 this year.
Chevron enjoys an advantage in Venezuela
And then there's Venezuela. Now that the U.S. is on friendly terms with the South American oil giant, its oil reserves, the world's largest, are open for business with U.S. oil companies. And Chevron is the only oil major operating in Venezuela. To be sure, it will take time and lots of money to just get Venezuela's crude production to 1 million barrels a day, but the oil is there, and so is Chevron.
NYSE: CVX
Key Data Points
And while oil price volatility will continue until the Persian Gulf conflict is resolved, the global refining shortage will last much longer than elevated crude prices. For those reasons, I think Chevron is the better investment at the moment.
Wall Street agrees with me. The average price target for XOM right now is 168.32, a 5% increase over the current price. The average price target for CVX shares is $217, about 8.5% higher than the current price.
