Valero is one of the energy companies throwing off a lot of cash right now.
Ty Wright/Bloomberg
Oil and gas companies are heading into earnings season this week with enormous momentum.
Refiners, producers and big multinational names like Exxon Mobil (ticker: XOM) are likely to post their best earnings results in more than a decade, if not the best ever. High prices for oil and gas and strong balance sheets have benefited the companies and investors.
One metric that investors have been particularly focused on is free cash flow, which includes the cash a company brings in after paying for capital and operating expenses. Oil and gas firms with growing cash flow can more easily pay off their debts and raise their dividends and share-buyback programs. In the coming quarter, several companies are expected to make multiple times as much cash flow as they did in the last quarter. Refiners and big oil companies including Exxon and Chevron (CVX) report this week, while several oil producers report in early August.
To gauge which companies are best-poised to increase their cash flow, we screened the SPDR S&P Oil & Gas Exploration & Production exchange-traded fund (XOP) for oil and gas names with the highest expected cash flow this quarter as compared to last quarter. That ETF also includes refiners. The five companies listed below ranked highest among those with market caps of greater than $10 billion, which is often used as a cutoff for large-caps.
Oil Companies Pumping Out Cash
These five large-cap oil and gas names are growing free cash flow more than peers.
| Company | Symbol | YTD Price Change | Expected FCF Growth | Market Cap ($B) |
|---|---|---|---|---|
| Valero Energy Corporation | VLO | 38% | 1580% | 42 |
| Phillips 66 | PSX | 17 | 230 | 41 |
| ConocoPhillips | COP | 22 | 206 | 114 |
| Ovintiv Inc | OVV | 32 | 144 | 11 |
| Occidental Petroleum Corporation | OXY | 111 | 75 | 57 |
Source: Factset
Valero (VLO) is one of the country’s largest refiners, and it’s benefited greatly as demand for gasoline and diesel has spiked amid energy shortages throughout the world. Crack spreads, a measurement of the spread between crude oil and the price of the products that refiners make from crude, have risen to record levels because of a shortage of refining capacity. Valero’s dividend yield is now 3.6%. The company could raise it more or buy back shares given how much cash it’s generating.
Phillips 66 (PSX) is also a major refiner, and the company has a 4.5% dividend yield after raising the dividend in May. Cash flow has been a big help to Phillip’s balance sheet. The company has already paid off $3 billion of the $4 billion of the debt it added since the pandemic began.
ConocoPhillips (COP) is one of the country’s largest oil and gas production companies, with operations around the world. Citi analyst Alastair Syme recently predicted that Conoco’s second-quarter earnings would be its largest ever. He sees shares rising to $115 from a recent $91.
Ovintiv (OVV) is another producer whose fortunes have improved over the past year. In fact, Ovintiv stock has risen more than 10 times over from its pandemic lows. Bank of America recently upgraded shares to Buy, with analyst Doug Leggate writing that Ovintiv produces a lot of natural gas, a commodity whose price has been rising quickly because of global shortages.
Occidental Petroleum (OXY) has also been one of the best-performing large-cap oil stocks, more than doubling since the start of the year. The company has paid off more than $8 billion in debt this year.
Write to Avi Salzman at [email protected]
