After a 13% decline over the last six months, at the current price of around $153 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 declined from around $175 to $153 in the last six months, as oil prices have been surprisingly lower than expected this year. Crude oil is trading in the low $70s, down double-digits from the beginning of the year. Having said that, the short-term trend for oil will depend upon the level of market angst. But, we believe that the energy giant’s fundamentals remain strong, which will likely pave the way for longer-term gains. Also, we believe that rebounding demand and tight supplies can lead to higher oil prices by the end of the year. Even if oil trends lower, Chevron is among the lowest-cost producers, so they can still generate a tremendous amount of cash.
In Q1, Chevron’s earnings from refining helped offset declines in energy prices as well as oil and gas production. Q1 earnings in the U.S. Upstream segment fell 45% year-over-year (y-o-y) to $1.8 billion and slid 8.5% to $3.4 billion in the International Upstream segment, primarily due to lower realizations. On the other hand, Q1 earnings in the U.S. Downstream earnings doubled from a year ago to $977 million and International Downstream swung to a $823 million profit from a $155 million year-ago loss, primarily due to higher margins on refined product sales. The company’s first-quarter revenues fell around 7% y-o-y to $50.1 billion but earnings grew to $3.46 per share from $3.22 per share in the year-ago quarter. In addition, Chevron’s Q1 net production fell 3% y-o-y to 2.98 million barrels of oil equivalent (boe)/day, as international production declined with the end of the Erawan concession in Thailand, although production in the Permian Basin increased 4%.
We forecast CVX’s Revenues to be $195 billion for the fiscal year 2023, down 17% y-o-y. Looking at the bottom line, we now forecast EPS to come in at 13.24. Given the changes to our revenues and earnings forecast, we have revised our CVX’s Valuation to $170 per share, based on $13.24 expected EPS and a 12.9x P/E multiple for the fiscal year 2023 – almost 11% 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.
Chevron is buying PDC Energy, an onshore U.S. energy producer for $6.3 billion. The core reason for the purchase is to increase the company’s oil reserves and reduce the carbon intensity of the company’s energy production.
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.
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|S&P 500 Return||0%||16%||99%|
|Trefis Multi-Strategy Portfolio||-1%||17%||278%|
 Month-to-date and year-to-date as of 7/7/2023
 Cumulative total returns since the end of 2016