Exxon Mobil Corp. XOM and Chevron Corp. CVX were among energy companies that had their credit ratings downgraded or outlooks revised by Standard & Poor’s Ratings Services (“S&P”). The outlook for Exxon Mobil and Chevron was lowered to ‘negative’ from ‘stable’, S&P said in a statement last week. At the same time, the agency cut ratings for several other oil and gas producers, including Chesapeake Energy Corp. CHK, Denbury Resources Inc. DNR and Whiting Petroleum Corp. WLL.
Are Exxon, Chevron in Peril?
Not really.
It’s true that the commodity price rout has brutalized Exxon Mobil and Chevron’s upstream business segment revenue and earnings. For more than a year, the two biggest U.S. energy producers have seen their stock price decline precipitously, as the commodity downturn has taken its toll on the entire industry. Since July of last year, shares of Exxon Mobil and Chevron have dived around 20% and 30%, respectively – a significant fall considering their status as ‘traditionally defensive stocks.’
However, the companies are still sound financially. In fact, their financial flexibility and strong balance sheets are real assets in this highly uncertain period for the economy. Both remain in excellent financial health, with enough in cash on hand and a very manageable debt-to-capitalization ratio in the low-to-mid teens.
Exxon Mobil and Chevron are two of the best-run companies among the global oil majors, consistently producing industry-leading financial returns. To add to this, management has established quite a track record of conservative capital management and cash returns to shareholders.
Also, while updating the outlook for Exxon Mobil and Chevron, S&P has maintained their long-term corporate credit rating. For Exxon Mobil, it’s still the coveted “AAA” – the highest grade available. Chevron’s “AA” rating places it two notches lower.
Oil’s Rally Boosting Battered Stocks
Crude prices have been climbing higher since last week, with ‘The Energy Select Sector SPDR’ posting a jump of 12.5%. Exxon Mobil and Chevron have gained 6% and 11% in the meantime. There are investors who see oil’s brief rally as just the calm before the storm.
The Zacks Rank has also been reflective of this development, with both the supermajors improving to a Zacks Rank #3 (Hold) from the Zacks Rank #5 (Strong Sell) they were carrying a short while ago.
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Click to get this free report CHEVRON CORP (CVX): Free Stock Analysis Report EXXON MOBIL CRP (XOM): Free Stock Analysis Report CHESAPEAKE ENGY (CHK): Free Stock Analysis Report DENBURY RES INC (DNR): Free Stock Analysis Report WHITING PETROLM (WLL): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research