Energy Stocks Defy Wall Street as Exxon and Chevron Surge

ExxonMobil (XOM) and Chevron (CVX) have defied Wall Street's claims that energy stocks are lagging behind, with gains of 49% and 38% respectively over the past year. Despite this strong performance, analysts like Michael Cuggino of Permanent Portfolio Family of Funds argue that energy stocks are still undervalued. Cuggino pointed out that both Exxon and Chevron trade at about 13 times next year's earnings, with dividend yields of 3.5% and 2.5%, making them attractive total-return plays.

Chevron recently secured a significant 20-year power deal with Microsoft (MSFT), adding a long-term revenue stream linked to AI. The agreement covers 2.67 gigawatts of capacity for a West Texas data center, with Chevron expecting 'mid-teens returns.' This deal underscores the growing importance of energy majors in powering AI-driven growth.

However, a slide in crude oil prices poses a risk to the valuation case. WTI has dropped from $102 to $84, and the EIA forecasts Brent to average $79 in 2027, which could compress estimates and erode the value proposition. Analysts are divided, with Chevron receiving 20 Buy ratings or Strong Buy ratings, while Exxon has 15 Hold ratings.

Looking ahead, earnings revisions and third-quarter reports will be crucial. Chevron's second quarter saw adjusted EPS of $6.06, revenue up 51.4% to $67.20B, and free cash flow of $18.1 billion. Exxon reported more than $14 billion of earnings and $17 billion of free cash flow in the same period. The case for owning these stocks now rests on valuation, income, and earnings revisions.