Has Chevron Stock Reached Its Near Term Potential?

by Trefis Team
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Triggered by the declining trend in crude oil inventories and a recovery in benchmark prices, the shares of Chevron Corporation (NYSE: CVX) have gained 25% in the past month. Given the periodic review by OPEC for extending production cuts and the EIA’s expectation for WTI benchmark prices remaining under $45/barrel in 2021, Trefis believes that Chevron stock has reached its near-term potential. Despite the initiation of mass vaccination, there is a strong likelihood of oil supply exceeding demand due to lower discretionary spending as the coronavirus cases continue to rise globally. We compare Chevron Corporation’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • From 3/24/2020: S&P 500 recovers 64% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how CVX and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Chevron Corporation vs S&P 500 Performance Over 2007-08 Financial Crisis

CVX stock declined from levels of around $94 in September 2007 to levels of around $60 in March 2009 (as the markets bottomed out), implying CVX stock lost 36% from its approximate pre-crisis level. It recovered post the 2008 crisis to levels of about $77 in early 2010 – rising by 27% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

Chevron Corporations’ Fundamentals are likely to improve in the coming quarters

Chevron Corporation’s Revenues grew by 28% from $114 billion in 2016 to $146 billion in 2019, supported by improving benchmark prices and rising production volumes. However, the net margins deteriorated due to higher depreciation costs – resulting in a decline in earnings per share in the past few years. Recovery in benchmark prices and growing production volumes led to a sequential improvement in third quarter revenues and earnings. Considering the declining trend in commercial crude oil inventories, we expect Chevron Corporation’s fundamentals to improve in the coming quarters.


Phases of Covid-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Given the likelihood of an easing in OPEC+ mandated cuts in the coming months, Trefis believes that CVX stock remains a risky bet at present.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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