Exxon Mobil Corporation (XOM), Chevron Corporation (CVX): Keep an Eye on This Energy Play

Opposite to Williams, Exxon Mobil Corporation (NYSE:XOM) is trading at one of the lowest P/E, P/B, and P/S rates in its history, thus providing a good entry point, as shares are quite cheap in relation to the company’s assets and performance.

However, these assets also represent a threat, as their growth rate (14.6%) double the company’s revenue increases (7% CAGR 5 years), evidencing inefficient management. The same can be said about operating and gross margins, both considerably declining over the past few years. So, although dividend yield is relatively high, the stock price of $86.7 is close to the company´s historical maximum of $95, making of Exxon a not so alluring investment.

In addition, Exxon Mobil Corporation (NYSE:XOM) has the biggest asset base, which creates a challenge to achieve growth in both oil and natural gas production. Exxon has been reporting a disappointing production trend as its fourth quarter 2012 production level decreased 5.2% year/year. While an investor could buy Exxon at a much lower multiple than Williams, it will get a company that has reported six consecutive quarters of declining production growth.

Chevron Corporation (NYSE:CVX)’s case is not completely different, as the company’s growth profile depends on upstream projects which have inherent risk factors. In addition, it has considerably increased its CapEx to $37 billion (7% higher compared to the amount that Chevron invested in 2012), one of the highest in the oil industry.

This creates a double risk: increased leverage and potential deterioration in its credit metrics. Chevron Corporation (NYSE:CVX) management is “growth oriented” and could see Williams as an acquisition target. Chevron’s production outlook is one of the most promising in its peer group, with several interesting startups such as the Caesar/Tonga in the deepwater Gulf of Mexico. Buying Williams could provide Chevron one of the most promising natural gas infrastructures.

Foolish conclusion

Williams trades at a reasonable stock price and offers realistic growth prospects. It has one of the most promising natural gas asset bases which could be a serious acquisition target to big-cap oil companies such as Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX).

The company is expected to post a solid dividend growth and enjoy the secular bullish trend for U.S. energy infrastructure.

The article Keep an Eye on This Energy Play originally appeared on Fool.com.

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