Bernstein: Refining supports ExxonMobil and Chevron’s third-quarter results; much of the near-term share-price upside may already have been realized

Why did third-quarter results beat market expectations?

ExxonMobil reported adjusted earnings per share of 4.23 dollars, 2.6% above market consensus; Chevron reported 5.28 dollars, 7% above consensus. Higher crude and refined-product prices, together with operational performance, supported cash flow.
Refining was ExxonMobil’s main profit driver for the quarter: adjusted refining profit rose 121% from the second quarter, primarily benefiting from stronger market refining margins. Management said diesel yields were approximately 3.5% higher than the 2019 level, generating approximately 1.5 billion dollars in additional profit in the third quarter.
Chevron’s adjusted downstream profit rose from 4.6 billion dollars in the second quarter to 4.9 billion dollars, supported by higher refining margins and throughput; a catalyst change at its largest refinery increased distillate output by approximately 10%.

ExxonMobil’s adjusted upstream profit fell from 9.2 billion dollars in the second quarter to 7.3 billion dollars in the third quarter, due to lower advantaged volumes, including the impact of its equity share in Guyana, and other adverse factors.
Chevron’s adjusted upstream profit fell from 8.3 billion dollars to 6 billion dollars over the same period, affected by lower liquids realizations, lower liftings and unfavorable timing effects. Its overall earnings per share fell quarter over quarter, but rose 14% excluding timing effects.

Both companies used strong free cash flow for dividends, buybacks, debt reduction and increasing cash balances. ExxonMobil raised its dividend by 4% and extended its annual buyback pace of 20 billion dollars through 2027, subject to reasonable market conditions; full-year cash capital expenditure guidance remained at 27 billion to 29 billion dollars.
Chevron’s third-quarter dividends and buybacks were 3.5 billion dollars and 2.5 billion dollars, respectively, and management said it would maintain that level of buybacks. Its Venezuelan joint venture plans to reach gross production of approximately 600 thousand barrels per day in 2031, but still requires 7 billion dollars of investment over the next five years.

Bernstein expects strong refining performance to continue beyond 2026 and assumes the war will continue through 2027; on that basis, it raised valuation multiples for both companies. ExxonMobil’s price target rose from 182 dollars to 193 dollars, and Chevron’s from 209 dollars to 248 dollars; their respective ratings remained Outperform and Market Perform.
The firm believes the stocks’ earlier gains came mainly from upward revisions to EBITDA expectations rather than valuation multiple expansion, and that their prices are already near 52-week highs; it judges that most near-term returns may already have been realized.
Bernstein expects the two stocks to perform similarly while the conflict continues; after it ends, downstream businesses may prove more resilient, benefiting ExxonMobil, which has the larger global refining business. Both companies’ price targets face downside risk if commodity prices or refining margins fall below expectations.