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 third-quarter results on Friday, October 27. Chevron has a diversified business with exposure to the entire energy value chain but still, oil prices are a big driver of financial performance. That said, oil prices were surprisingly lower than expected at the beginning of this year. However, crude oil picked up on expectations of tighter supply ever since Saudi Arabia and Russia extended their voluntary output cuts of a combined 1.3 million barrels per day (bpd) to the end of the year 2023 – in order to support prices. Among the most significant risks to oil markets since Russia’s invasion of Ukraine last year is the latest geopolitical tension between Hamas and Israel. There have not yet been any impacts on oil flows due to the conflict, but there could be major repercussions if it escalates. If the U.S. steps up sanctions against Iran, this would likely further strain an already tight oil market. The growing tight supplies due to geopolitical uncertainty and the soaring demand from the reopening of China’s economy could likely bode well for energy prices by the end of 2023. Even if oil trends lower, Chevron is among the lowest-cost producers, so it can still generate a tremendous amount of cash. Given that crude oil is currently at $88 per barrel at the time of this writing, Chevron is set up nicely to return a lot of capital to shareholders.
Chevron is buying fellow oil and gas producer Hess in an all-stock deal. The company is exchanging 1.025 of its shares for each share of Hess to pay $171 per share. In this scenario, Hess’ equity is valued at $53 billion, while the merger’s full value is $60 billion (after the assumption of debt). This acquisition will enhance and extend Chevron’s production and free cash flow growth outlook into the 2030s.
CVX stock has seen extremely strong gains of 80% from levels of $85 in early January 2021 to around current levels, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the increase in CVX stock has been far from consistent. Returns for the stock were 39% in 2021, 53% in 2022, and -13% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 9% in 2023 (YTD) – indicating that CVX underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Energy sector including XOM, COP, and BP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CVX face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
Our forecast indicates that Chevron’s valuation is around $170 per share, which is 6% higher than the current market price. Look at our interactive dashboard analysis on Chevron Earnings Preview: What To Expect in Q3? for more details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Chevron’s Q3 2023 revenues to be around $49.9 Bil, marginally above the consensus estimate. The company’s second-quarter revenues fell 29% year-over-year (y-o-y) to $48.9 billion. CVX’s worldwide net oil-equivalent production totaled 2.96 million barrels of oil equivalent (boe)/day, up 2% y-o-y and flat quarter-over-quarter, as Permian Basin output hit a quarterly record 772K boe/day (up 11% y-o-y). 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. For the third quarter, Chevron is expecting upstream turnarounds and downtime to reduce production by ~110K boe/day.
(2) EPS likely to beat consensus estimates marginally
Chevron’s Q3 2023 earnings per share (EPS) is expected to be $3.36 as per Trefis analysis, slightly ahead of the consensus estimate. In Q2, the company’s net income dropped to $6.01 billion, or $3.20/share, from $11.62 billion, or $5.95/share, in the year-earlier quarter. In the first half of 2022, Chevron booked $10.1 billion in upstream earnings and $3.31 billion in downstream earnings.
(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 2023, this translates into a price of about $170, almost 6% 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.
|S&P 500 Return||-2%||9%||87%|
|Trefis Reinforced Value Portfolio||-5%||18%||504%|
 Month-to-date and year-to-date as of 10/26/2023
 Cumulative total returns since the end of 2016