What To Expect From Chevron’s Stock Post Q2?

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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, is scheduled to announce its fiscal second-quarter results on Friday, July 28. We expect Chevron stock to likely rise due to revenues and earnings coming in marginally higher than expectations. Oil prices have been surprisingly lower than expected at the beginning of the year. However, oil prices have jumped over the last fortnight – boosted by a falling U.S. dollar and supply cuts by the world’s biggest oil exporters (Saudi Arabia and Russia). Brent futures currently trade at $82.43 a barrel and U.S. West Texas Intermediate (WTI) crude settled at $78.44 (as of July 25). A report released by OPEC also kept an optimistic outlook for world oil demand despite weak economic growth. It raised its growth forecast for 2023 and predicted only a slight slowdown in 2024, with China and India expected to keep driving the expansion in fuel use. 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 further higher oil prices by the end of the year. Even if oil trends lower, Chevron is among the lowest-cost producers, so it can still generate a tremendous amount of cash.

Our forecast indicates that Chevron’s valuation is around $170 per share, which is 7% higher than the current market price. Look at our interactive dashboard analysis on Chevron Earnings Preview: What To Expect in Q2? for more details.

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(1) Revenues expected to be slightly above the consensus estimates

Trefis estimates Chevron’s Q2 2023 revenues to be around $49.7 Bil, marginally above the consensus estimate. The company’s first-quarter revenues fell around 7% y-o-y to $50.1 billion.  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%. That said, the company looks well-positioned to benefit from its growing activity in the Permian Basin. By 2026, the company expects to generate more than $4 billion in free cash flow from oil production in the Permian.

Chevron is lowering its carbon footprint by investing in hydrogen, and alternative fuels like diesel and natural gas produced from renewable feedstocks instead of fossil fuels. 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.

(2) EPS likely to likely beat consensus estimates  marginally

Chevron’s Q2 2023 earnings per share (EPS) is expected to be $3.15 as per Trefis analysis, slightly ahead of the consensus estimate. In Q1, the company’s earnings grew to $3.46 per share from $3.22 per share in the year-ago quarter. 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.

(3) Stock price estimate higher than the current market price

Going by our Chevron’s Valuation, with an EPS estimate of around $13.24 and a P/E multiple of around 12.9x in fiscal 2022, this translates into a price of about $170, almost 7% 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. Chevron Peers shows how CVX stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CVX Return 3% -10% 37%
 S&P 500 Return 2% 19% 103%
 Trefis Multi-Strategy Portfolio 6% 26% 305%

[1] Month-to-date and year-to-date as of 7/25/2023
[2] Cumulative total returns since the end of 2016

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