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Why Is Chevron (CVX) Up 32.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Chevron (CVX - Free Report) . Shares have added about 32.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Chevron due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Chevron Q3 Earnings Beat Estimates, Sales Miss

Chevron reported adjusted third-quarter earnings per share of 11 cents. The Zacks Consensus Estimate was of a loss of 29 cents. The outperformance reflects the integrated energy major’s successful cost reduction initiatives, which allowed it to lower operating expenses and capital spending by 12% and 48%, respectively, from year-ago levels in the face of falling commodity prices. 

However, the bottom line compared unfavorably with the year-ago adjusted profit of $1.55 per share due to sharply lower oil and natural gas price realizations, plus decline in refined products margins.

The company, which recently entered into an agreement to sell its Appalachian assets to EQT Corp.for $735 million, generated revenue of $24.5 billion. The sales figure missed the Zacks Consensus Estimate of $26 billion and was down 32.3% year over year.

Meanwhile, Chevron said that it would keep paying shareholders a quarterly dividend of $1.29 despite the difficult operating environment.

Segment Performance

Upstream: Chevron’s production of crude oil and natural gas decreased 6.6% from the year-earlier level to 2,834 thousand oil-equivalent barrels per day/MBOE/d (60% liquids) — the second consecutive quarter where volumes remained below 3 million barrels per day. The decline reflects output curtailment in reaction to the coronavirus-induced commodity price collapse, and the impact of asset dispositions. This was partly offset by improved production in a number of properties.

The U.S. output rose 5.1% year over year to 982 MBOE/d while the company’s international operations (accounting for 65% of the total) was down 11.8% to 1,852 MBOE/d. At $31 per barrel, Chevron’s average realized liquids prices in the U.S. were 34% below the year-earlier levels while prices overseas were down 30.4%.

The dual pressure of slumping oil and gas realizations and lower production meant that, Chevron’s upstream segment recorded a paltry profit of $235 million in the third quarter of 2020, declining steeply from $2.7 billion in the year-ago period.

Downstream: Chevron’s downstream segment profit came in at $292 million, compared to $828 million last year. The deterioration primarily underlined a fall in refined products sales margins.

Cash Flows, Capital Expenditure

The company recorded $3.5 billion in cash flow from operations, down from $7.9 billion a year ago. The plunge in cash flow could be attributed to lower price realizations in the upstream business.

In the third quarter, Chevron paid $2.4 billion in dividends.

The company spent $2.6 billion in capital and exploratory expenditures during the quarter, down significantly from the year-ago period’s $5 billion. More than 78% of the total outlays pertained to upstream projects.

Balance Sheet

As of Sep 30, the San Ramon, CA-based company had $6.9 billion in cash and cash equivalents and total debt of $34.8 billion, with a debt-to-total capitalization of about 20.9%.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 47.19% due to these changes.

VGM Scores

At this time, Chevron has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Chevron has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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