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Here's Why You Should Retain Chevron (CVX) Stock for Now
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Chevron Corporation (CVX - Free Report) is a leading integrated energy player. This Zacks Rank #3 (Hold) company’s earnings beat estimates in three of the last four quarters and missed the same in one, delivering an average surprise of 7.67%.
What's Favoring Chevron?
The oil industry is extremely competitive and volatile. Small changes in demand or acts by petroleum resource-rich countries like Saudi Arabia and Russia, whose interests may conflict with those of the industry's publicly traded companies, can have a profound impact on the industry. Also, supply and demand imbalances can cause massive fluctuations in oil prices.
With investors giving up on risky assets in the wake of concerns about a slowing global economy, oil price dipped below the $70 mark on more than one occasion in 2023. However, the price has now hit a $75 per barrel, prompted by Saudi Arabia’s pledge to extend its current 1 million barrel per day production cut through August.
The positive trajectory in oil prices is a boon for Chevron’s upstream operations and project pipeline, located in the Permian Basin.
Chevron is projected to achieve a sustainable production ramp-up in 2023. We expect the company to produce an average of 3,034.4 thousand barrels of oil equivalent per day (MBOE/d), up from 2,999 MBOE/d in 2022. This increase can be attributed to the Noble Energy acquisition and the company's strong performance in the Permian Basin region.
The buyout of Noble Energy, worth $5 billion, expanded Chevron's presence in the DJ Basin and Permian Basin regions. This also generated significant cost savings, as CVX gained access to Noble Energy's low-cost reserves and cash-generating offshore assets in Israel, including the Leviathan natural gas project.
Chevron recently acquired PDC Energy, giving it a stronger presence in the Denver-Julesberg Basin. It expects the deal to improve financial measures within the first year, with expected free cash flow of $1 billion per year.
CVX’s earnings and cash flow improved due to higher crude realizations and consumption recovery. The company raised its quarterly dividend by 6% and tripled spending for stock repurchases to $75 billion.
In 2022, Chevron recorded $49.6 billion in cash flow, a significant increase from the previous year’s level. The company has raised its dividend five times in the last five years, and its payout has increased 6.07% in the same time frame.
What’s Hurting the Stock?
The upstream business of the integrated firm is highly exposed to volatility in oil and gas prices. Also, Chevron faces a potential decline in its stock price due to rising inflation, increased labor and material costs, and higher expenses.
We are also worried over the company’s ability to replace production. Over the past few years, oil and gas supermajors have struggled to replace reserves as new energy resources became less accessible. Given their large asset bases, increasing oil and natural gas production has been challenging.
In this context, Chevron's 10-year reserve replacement ratio of 100% is indicative of the company's struggles to add proved reserves to its reserve base.
Evolution Petroleum is worth approximately $265.15 million. EPM currently pays a dividend of 48 cents per share, or 6.02% on an annual basis.
The company currently has a forward P/E ratio of 7.59. In comparison, its industry has an average forward P/E of 10.60, which means EPM is trading at a discount to the group.
Murphy USA is valued at around $6.64 billion. In the past year, its shares have risen 14.3%.
MUSA currently pays a dividend of $1.52 per share, or 0.50% on an annual basis. Its payout ratio currently sits at 6% of earnings.
NGL Energy Partners is valued at around $525.07 million. In the past year, its units have risen 180.9%.
The partnership currently has a forward P/E ratio of 4.57. In comparison, its industry has an average forward P/E of 14.10, which means NGL is trading at a discount to the group.
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Here's Why You Should Retain Chevron (CVX) Stock for Now
Chevron Corporation (CVX - Free Report) is a leading integrated energy player. This Zacks Rank #3 (Hold) company’s earnings beat estimates in three of the last four quarters and missed the same in one, delivering an average surprise of 7.67%.
What's Favoring Chevron?
The oil industry is extremely competitive and volatile. Small changes in demand or acts by petroleum resource-rich countries like Saudi Arabia and Russia, whose interests may conflict with those of the industry's publicly traded companies, can have a profound impact on the industry. Also, supply and demand imbalances can cause massive fluctuations in oil prices.
With investors giving up on risky assets in the wake of concerns about a slowing global economy, oil price dipped below the $70 mark on more than one occasion in 2023. However, the price has now hit a $75 per barrel, prompted by Saudi Arabia’s pledge to extend its current 1 million barrel per day production cut through August.
The positive trajectory in oil prices is a boon for Chevron’s upstream operations and project pipeline, located in the Permian Basin.
Chevron is projected to achieve a sustainable production ramp-up in 2023. We expect the company to produce an average of 3,034.4 thousand barrels of oil equivalent per day (MBOE/d), up from 2,999 MBOE/d in 2022. This increase can be attributed to the Noble Energy acquisition and the company's strong performance in the Permian Basin region.
The buyout of Noble Energy, worth $5 billion, expanded Chevron's presence in the DJ Basin and Permian Basin regions. This also generated significant cost savings, as CVX gained access to Noble Energy's low-cost reserves and cash-generating offshore assets in Israel, including the Leviathan natural gas project.
Chevron recently acquired PDC Energy, giving it a stronger presence in the Denver-Julesberg Basin. It expects the deal to improve financial measures within the first year, with expected free cash flow of $1 billion per year.
CVX’s earnings and cash flow improved due to higher crude realizations and consumption recovery. The company raised its quarterly dividend by 6% and tripled spending for stock repurchases to $75 billion.
In 2022, Chevron recorded $49.6 billion in cash flow, a significant increase from the previous year’s level. The company has raised its dividend five times in the last five years, and its payout has increased 6.07% in the same time frame.
What’s Hurting the Stock?
The upstream business of the integrated firm is highly exposed to volatility in oil and gas prices. Also, Chevron faces a potential decline in its stock price due to rising inflation, increased labor and material costs, and higher expenses.
We are also worried over the company’s ability to replace production. Over the past few years, oil and gas supermajors have struggled to replace reserves as new energy resources became less accessible. Given their large asset bases, increasing oil and natural gas production has been challenging.
In this context, Chevron's 10-year reserve replacement ratio of 100% is indicative of the company's struggles to add proved reserves to its reserve base.
Stocks to Consider
Some better-ranked stocks for investors interested in the energy sector are Evolution Petroleum (EPM - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Murphy USA (MUSA - Free Report) and NGL Energy Partners (NGL - Free Report) , both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evolution Petroleum is worth approximately $265.15 million. EPM currently pays a dividend of 48 cents per share, or 6.02% on an annual basis.
The company currently has a forward P/E ratio of 7.59. In comparison, its industry has an average forward P/E of 10.60, which means EPM is trading at a discount to the group.
Murphy USA is valued at around $6.64 billion. In the past year, its shares have risen 14.3%.
MUSA currently pays a dividend of $1.52 per share, or 0.50% on an annual basis. Its payout ratio currently sits at 6% of earnings.
NGL Energy Partners is valued at around $525.07 million. In the past year, its units have risen 180.9%.
The partnership currently has a forward P/E ratio of 4.57. In comparison, its industry has an average forward P/E of 14.10, which means NGL is trading at a discount to the group.