Chevron Fails To Impress Investors Despite Strong Results; Will Continue To Produce More With Restricted Capex

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Unlike its closest rival Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) failed to please its investors with its September quarter earnings, despite strong improvement in both the top-line as well as earnings. The company missed its earnings estimate by a notable margin, which has caused its stock to tank by close to 5% since the announcement of the results. We currently have a price estimate of $110 per share for the company, which is slightly lower compared to its market price.

Here are the key takeaways of the company’s 3Q’17 earnings report using our interactive platform:

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Chevron’s revenue grew both on sequential as well as an annual basis driven by higher volumes and better price realizations in its upstream operations, and higher margins on its refined products sales for its downstream operations. However, despite the company’s cost reduction initiatives, its adjusted earnings missed the market expectations due to asset disposition and foreign exchange charges booked during the quarter.

  • On Track To Achieve Production Target For The Year

The company’s total production rose by more than 8% in the third quarter driven by the production increases from its shale and tight properties in the Permian Basin in Texas and New Mexico. This implies that the company is on track to achieve its targeted production growth of 4%-9% (without asset sales) in 2017.

  • Aims To Produce More While Optimizing Capex

Chevron aims to expand its overall output at a steady rate over the next few years, while restricting its capital investment in the range of $17-$22 billion for the remaining years of this decade. The company’s production growth will be driven by the ramp up of its Gorgon LNG and Wheatstone LNG Projects in Australia, and shale and tight rock drilling activity in the Permian Basin. However, the company’s capital spending will depend closely on the recovery in the commodity markets.

  • EBITDA Likely To Improve Backed By Cost Reduction Measures

Given the company’s consistent efforts to control its operating costs over the last few quarters, it has managed to improve its profitability significantly even in a weak oil price environment. Going forward, the company will continue to streamline and optimize its operations to reduce its operating costs and further enhance its operating profits and margins, which will in turn boost its long term value.

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