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Almost flat year-to-date, at the current price of around $154 per share, we believe Chevron Corporation (NYSE: CVX), a company manufacturing and selling a range of refined petroleum products, including gasoline, diesel, marine, and aviation fuels, premium base oil, finished lubricants, and fuel oil additives – could see gains in the longer term. CVX stock has increased from around $149 to $154 so far this year, whereas its peer Exxon Mobil (NYSE: XOM) stock is up 12% YTD. Chevron’s relatively poor stock performance compared to its peers is likely the result of investor concerns surrounding the pending $53 billion acquisition of Hess. The deal appears to be a good one from a strategic perspective. Upon closing of the deal, Chevron will acquire 465,000 acres in the Bakken Shale, and will add substantial oil-equivalent production to its already expansive portfolio in Guyana. However, there’s a major roadblock. Hess and Exxon are partners in a large energy project in Guyana, and XOM believes it has the right to buy Hess out of the project if it sells itself to Chevron. That project is likely one of the main reasons why Chevron wants to buy Hess, so this could rush the Hess acquisition or, at the very least, make it a less desirable purchase. CVX shares are facing the brunt of this uncertainty because of the doubts around what is a very large acquisition.

Overall, Brent crude oil is at $85 (at the time of writing), and we believe that rebounding demand and tight supplies will sustain these oil prices through the end of the year. Chevron’s strong balance sheet will likely pave the way for longer-term gains. Even if oil trends lower, Chevron is among the lowest-cost producers and generates more of its revenue, collectively, from its midstream (transmission pipelines) and downstream operations (chemical and refineries) than it does from drilling.

CVX stock has seen extremely strong gains of 80% from levels of $85 in early January 2021 to around $154 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in CVX stock has been far from consistent. Returns for the stock were 39% in 2021, 53% in 2022, and -17% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that CVX underperformed the S&P in 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Energy sector including XOM, COP, and BP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CVX face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

While the energy giant’s earnings declined, it produced a solid first quarter overall thanks to the strength of its U.S. upstream business. Q1 net income fell to $5.5 billion, or $2.97 per share, from $6.57 billion, or $3.46 per share, in the year-earlier quarter, as upstream earnings edged 1.5% year-over-year (y-o-y) higher to $5.24 billion but downstream fell 56% to $783 million. Q1 worldwide production rose 12% y-o-y to 3.3 million barrels of oil equivalent (boe)/day, including a 35% surge in U.S. output to 1.57 million boe/day, due mostly to the acquisition of PDC Energy and strong operational performance in the Permian and DJ Basins in the U.S. and the Tengizchevroil affiliate in Kazakhstan. Chevron plans to aggressively ramp up production from the Permian Basin, a potential early sign that U.S. oil output may exceed expectations in 2024. However, the company’s international production fell 2.2% to 1.77 million boe/day. It should be noted that U.S. natural gas realization plunged 51.9% y-o-y while international realization fell 19.4% in Q1.

We forecast CVX’s Revenues to be $200 billion for the fiscal year 2024, marginal up y-o-y. Looking at the bottom line, we now forecast EPS to come in at $12.75. Given the changes to our revenues and earnings forecast, we have revised our CVX’s Valuation to $173 per share, based on $12.75 expected EPS and a 13.6x P/E multiple for the fiscal year 2024 – almost 12% higher than the current market price. It should be noted that we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.

It is helpful to see how its peers stack up. CVX Peers shows how Chevron’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/9/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.