Quarterly report cards for oil super majors Exxon Mobil (XOM) and Chevron (CVX) are out. Were the numbers satisfactory? There are pro and con arguments for both. Here, we determine which is the best play for reliable, long-term growth amid choppy overall conditions.

Exxon, for instance, lost its triple-A rating. Chevron, on the other hand, missed analysts' estimates by a hefty 19 cents. That said, downstream businesses saved both companies.

And so it all boils down to that one question: which stock deserves to be a part of your wealth-building strategy?

Exxon's first quarter earnings of $1.81 billion, or $0.43 per share, beat estimates by $0.12. Production was up 1.8% year-over-year. Liquids production of 2.5 million barrels per day (bpd) was in fact up 261,000 bpd. Natural gas production of 10.7 billion cubic feet per day, however, was down. The savings grace was downstream earnings of $906 million. The first quarter marked the third straight quarter of earnings surprises, if you were looking at earnings-per-share (EPS).

Chevron reported a loss of $1.45 billion in the upstream business during the first quarter. Like Exxon, it booked a gain of $735 million on the downstream side, providing some relief. It's first quarter EPS of -$0.39 missed EPS estimates by $0.19 but delivered a beat on revenue at $23.56 billion (down 31.8% year-over-year). In comparison, Exxon's revenues fell by 28%.

Chevron lovers may mention how Exxon lost its triple-A rating. The fact of the matter is Exxon's double-AA plus is still a great rating. Chevron's rating dropped from AA to AA- in early February, while BP Plc fell from A to A- a few weeks later.

But in true Exxon tradition, the company responded with a dividend hike after the rating cut. Investors should be impressed by its defiant attitude and its unwavering commitment to income investors.

In late April, Goldman Sachs had cautioned how oil prices may stay low long enough to force Exxon Mobil and its big oil peers to cut their dividends. ConocoPhillips cut dividends by two-thirds earlier this year. BP, however, maintained its dividend.

Exxon is twice as large as Chevron. However, Chevron with its $38.50 billion in loans is actually as debt-laden as Exxon ($38.69 billion) even though Chevron's net profit over a trailing 12-month period at $4.59 billion is about one-third of Exxon's $16.15 billion.

While Chevron is projected to deliver a 40% per annum EPS growth for the next five years compared to 26.8% at Exxon, we believe Exxon's higher profit margins, superior return of assets (CVX: 0.5 vs XOM: 3.8) and return on equity (CVX: 0.9 vs XOM: 7.6) profiles should be get it better positioning.

Exxon's 3.4% dividend yield, 74.8% payout ratio and 33 years of dividend growth are also way ahead of Chevron's 4.2% yield but with a nearly 400% unsustainable payout ratio. Chevron, in our view, will have to soon cut dividends, a clear negative.

Add to that, Chevron's shares are expensive. Trading at 12.35 times EV/EBITDA or a PEG ratio of 2.14 or 22.5 times one-year forward earnings, Chevron is primed for a fall. Exxon trades at a PEG ratio of 1.26 and 20.35 times forward earnings.

Our verdict: Go with Exxon all the way.


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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.