Hi YXI friends,

I have received a lot of interest on energy stocks. It is a great sector to add to our macro-driven theme.

In this article, I will do a valuation analysis of the largest 11 names in XLE by market cap (with a cut off at $50 billion).

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. A Market Capitalisation Comparison

XOM is by far the largest US listed energy player on our list, almost twice as large as the second place CVX, which is twice as big as the third player, COP.

In terms of EV vs Revenue generated, there is a strong correlation between higher revenue and higher enterprise value. It sounds obvious, but this is not always the case in every industry - just look at TSLA vs. GM and F in autos.

2. EV/ Revenue

EV/ Revenue vs TTM Revenue Growth

In terms of TTM Revenue growth, most of the names on our list are offside. PSX, XOM, MCP, CVX, COP, KMI are all enduring negative growth. When you grow negatively, it’s difficult to expect a EV/ Revenue multiple of greater than 2x.

SLB, OKE, and FANG all have grown above 10% in the past year. Among them, Fang is the fastest growing (18%) with a 7x EV/ Revenue multiple. SLB has the lowest multiple (2x) for very reasonable growth (12.4%).

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