How Will Chevron Corporation Perform In 2018?

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Chevron

We forecast Chevron Corporation (NYSE:CVX) to post modest revenue growth and adjusted EPS of $6.70 in 2018. We expect the growth to be primarily led by its Crude Oil & Natural Gas Liquid segment. 2017 was a good year for oil companies, as growth in WTI crude prices aided their margins. Similarly, in 2018, the average WTI crude oil price is expected to be $56, representing a 10% jump from the 2017 average. Accordingly, we expect Chevron Corporation should do well in 2018.

We have created an interactive dashboard on Chevron Corporation’s expected performance for 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance. Below we discuss our expectations and forecasts for the company.

Expect Crude Oil & NGL Business To Drive Growth In 2018

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We estimate the Crude, and Natural Gas Liquid (NGL) revenues to grow roughly 9% in 2018. While we don’t expect much change in the production, the average crude oil and NGL sale price is estimated to see a 10% jump to $53. Our forecast is based on the fact that OPEC and its allies have committed to production cuts, which is likely to keep oil prices higher, as compared to the prior year. Having said that, there is a risk of OPEC changing its course, given a surge in oil exports from the U.S. to Asia. Moreover, increased supply from the U.S. shale producers can keep the price in check. 

Looking at the company’s Natural Gas business, we expect modest revenue growth, primarily led by higher price realization. It should be noted that Chevron’s Natural Gas price realization has declined from the peak of $6.02 in 2008 to $3.45 in 2016. However, it increased to $4.07 in 2017, due to higher demand. The overall gas demand in 2017 was high, which led to lower average inventory levels, thereby pushing the prices higher. Looking forward, natural gas prices are expected to remain steady in 2018. The benchmark Henry Hub natural gas spot price is expected to average around $2.99/MMBtu in 2018, according to the U.S. Energy Information Administration, which is similar to the 2017 average. Beyond Crude and Natural Gas, we don’t expect any significant changes in the company’s Refined Products & Chemicals segment.

Forecast Strong Earnings Growth In 2018

 

We forecast Chevron’s Net Income Margin to increase in 2018, primarily due to lower costs, as we expect higher price realization both for crude and natural gas. With 7% Net Income Margin, and 1.88 Mil shares, we arrive at earnings per share of $6.70. We estimate a price-earnings multiple of around 20 for Chevron, which is below many oil industry multiples, reflecting the risk of volatility in oil prices impacting the company’s future growth. This translates into a price estimate of $133 for Chevron Corporation’s stock, which is more than 15% above the current market price.

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