Chevron Corporation (CVX)

Equity
US
Energy

RISK

RETURN

Key risk factors

Low price volatility

Good trading liquidity

Limited default risk

Key return factors

Excellent dividends

Good growth

Good margins and returns

Company profileChevron Corporation, through its subsidiaries, engages in integrated energy and chemicals operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, production, and transportation of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil, refined products, and lubricants; manufacturing and marketing of renewable fuels; transporting crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It is also involved in the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is based in San Ramon, California.

Valuation: Fairly valued

Multiple

TTM

NTM

P/E

14.30

12.20

PEG

0.80

P/B

1.80

1.60

P/S

1.50

P/FCF

15.70

13.00

EV/EBITDA

8.30

6.60

Considering past and projected metrics, the stock is neither 'expensive' nor 'cheap' compared to its peers. In particular, the stock is reasonably priced on P/E, of fair value on EV/EBITDA, and trading at neutral levels on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 5ppts over past six months and grown 4ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Neutral

The average target price is 179 and suggests 13% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 206.0. This translates into 31% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 155.0. This is equivalent to 2% downside potential in the worst case.

Profitability: Good

RoE

Chevron Corporation reported a return on equity (RoE) of 12.6% in the last 12 months, up from 12.1% in FY23. The market consensus projects an RoE of -0.6% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 7.8% in the last 12 months, a decrease from 8.2% in FY23. The market analysts predict that RoA will be -0.4% in FY24, though below its peers in this period.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 8.9%, above the peers. The consensus estimate for FY24 for RoCE is -0.7%, however, this time below its peers.

Net margin

EBITDA margin

Historically, CVX has reported good net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 10.5%, down from 10.9% in FY23. The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 19.1% in the last 12 months, up from 18.6% in FY23.

RoIC / WACC = 1.8(good value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.8 in the past several years. This ratio implies a good shareholder value creation.

Growth: Good

Revenue

EBITDA

EPS

Free cash flow

CVX reported revenue of USD 193 056mn in the last 12 months, down 1% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 4% from FY23 to USD 10.91. Market expects EPS to reach USD 12.69356 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown very rapidly in recent years (positive). Net income has fallen rapidly in recent years (strongly negative). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of all key metrics. This is an extremely negative factor.

Dividends: Excellent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been strong and significantly above its peers. At the same time, the average five-year yield has been significantly higher and exceeded most of its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note robust profitability, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors.

Volatility: Low

In normal market circumstances, CVX is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to mild.

Stress-test: Average

In highly turbulent market conditions, CVX is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate.

Selling difficulty: Low

CVX boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.