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Chicago, IL – July 25, 2025 – Today, Zacks Equity Research discusses Exxon Mobil Corp. XOM, Chevron Corp. CVX and Shell plc SHEL.
Industry: Integrated Energy
Link: https://www.zacks.com/commentary/2612989/3-integrated-energy-stocks-to-gain-despite-industry-vulnerability
The crude oil pricing environment is expected to experience significant volatility this year, which will negatively impact the exploration and production activities of integrated energy companies. A deceleration in oil production growth can create challenges, thereby constraining earnings from upstream operations.
At the same time, the accelerating shift toward renewable energy is introducing greater uncertainty to the Zacks Oil and Gas Integrated International industry’s prospects. This combination of factors suggests a challenging and softened industry environment that is expected to persist through at least the remainder of 2025.
Among the companies in the industry that will probably survive the business challenges are Exxon Mobil Corp., Chevron Corp. and Shell plc.
The Zacks Oil and Gas Integrated International industry covers companies primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and the deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. Midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products.
In downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities involve chemical businesses that manufacture raw materials for making plastics. The integrated players are now gradually focusing on renewables, leading to the energy transition. The firms aim to lower emissions from operations and cut the carbon intensity of the products sold.
Macroeconomic Volatility: The integrated energy sector is currently navigating a highly uncertain and challenging macroeconomic environment. Refining, renewable energy and chemical segments are particularly under pressure due to limited visibility into future market dynamics. Escalating trade tensions are compounding this uncertainty, raising concerns over potential economic slowdowns. Meanwhile, oil prices remain volatile, swayed by geopolitical risks and fluctuating OPEC+ production strategies. As a result, major integrated energy players are grappling with profitability challenges.
Slowdown in Production Growth to Hurt Upstream Business: There has been a slowdown in oil production growth in the upstream businesses of integrated energy companies in the United States due to shareholder demands for a greater focus on returning capital rather than investing in production expansion. As production growth slows, output decreases, which can lead to reduced revenues. Since upstream operations depend heavily on volume to generate income, any stagnation in production growth has a direct and negative impact on their bottom line.
Growing Demand for Renewables is Concerning:Governments, investors and stakeholders are placing growing emphasis on addressing climate change, leading to an increased demand for renewable energy. Consequently, the demand for products reliant on oil, natural gas and natural gas liquids is expected to decline, with solar and wind energy gaining prominence in the energy landscape. The integrated energy firms are adversely impacted by these trends as they are primarily engaged in the production and transportation of fossil fuels, such as oil, and the sale of refined petroleum products.
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #189, which places it in the bottom 23% of the 245 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let us take a look at the industry’s recent stock market performance and valuation picture.
The Zacks Oil and Gas Integrated International industry has underperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has plunged 5.4% over this period compared with the S&P 500’s growth of 17.3% and the broader sector’s decline of 2.6%.
Since oil and gas companies are debt-laden, it makes sense to value them based on the Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio. This is because the valuation metric takes not just equity into account but also the level of debt.
On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 4.27X, lower than the S&P 500’s 17.85X. It is also below the sector’s trailing 12-month EV/EBITDA of 4.77X.
Over the past five years, the industry has traded as high as 6.54X and as low as 2.75X, with a median of 4.11X.
Chevron: The company completed its $53-billion acquisition of Hess Corporation, thereby strengthening its upstream portfolio and obtaining a 30% interest in the highly valued Stabroek Block offshore Guyana. Chevron gains strategic access to one of the most prolific deepwater discoveries of the past decade, estimated to hold more than 11 billion barrels of recoverable oil. The acquisition also strengthens its position in the U.S. Bakken shale, the Gulf of Mexico and Southeast Asia. It currently carries a Zacks Rank #3 (Hold).
The move comes as a turning point for Chevron as it is facing mounting pressure to replenish its reserves and strengthen free cash flow amid ongoing volatility in the oil markets.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ExxonMobil: The company's acquisition of Pioneer Natural Resources expanded its production capabilities in the Permian Basin, one of the most profitable regions in the United States due to its inexpensive production costs. XOM boasts a strong portfolio of upstream assets, focused on oil-rich resources in the Permian Basin and offshore Guyana. Production costs in those assets are low. Therefore, the leading integrated energy major can overcome a collapse in oil and gas prices. Similar to its operations in the Permian, ExxonMobil boasts a robust project pipeline in offshore Guyana resources. It presently carries a Zacks Rank #3.
Shell: The company’s acquisition of Pavilion Energy strengthens its LNG trading capabilities and positions itself for long-term growth in cleaner fuels. Shell’s position as a major supplier of LNG should help the company meet the fuel’s growing demand and improve its cash flow. Shell, with a Zacks Rank of 3, is targeting a 4-5% annual increase in LNG sales over the next five years and 1% annual production growth.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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This article originally published on Zacks Investment Research (zacks.com).
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