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Chevron (CVX) Stock Barely Moves in a Month: An Opportunity?
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Energy giant Chevron Corporation’s (CVX - Free Report) share price has been trading flat for a while. Over the past month, the San Ramon, CA-based integrated company's stock has inched up 0.4% compared to the S&P 500’s climb of 3.7%. During the same period, the Oil/Energy space and its subindustry have grown 1.2% and 1.7%, respectively.
Image Source: Zacks Investment Research
This performance was caused by uncertainty in the market due to concerns over oil demand and the perception that geopolitical risks to crude supplies are ebbing. Traders had also factored in OPEC+ plans to phase out output cuts starting in October.
Given Chevron’s underperformance, investors are disappointed and uncertain about what to do with their holdings. Moreover, shares are trading below the 50-day moving average, further indicating CVX’s downward trend.
Despite price jitters, the case for Chevron isn’t weakening. It remains one of the best-positioned global integrated oil companies to achieve sustainable production growth and boast an impressive business model.
What Are Chevron’s Strengths?
Long-Term Investment Potential: Chevron’s long-term projects and investments in the oil and gas sector are designed to yield benefits over years or even decades, not quarters. This long-term horizon can provide substantial returns despite short-term market fluctuations. For investors with patience, Chevron's strategic positioning can result in significant future gains once the current market volatility subsides.
Production Growth: Chevron’s buyout of PDC Energy is set to drive substantial production growth, particularly in the DJ Basin. This acquisition, alongside OPEC’s price support, positions Chevron for robust profit expansion. The company's anticipated 4-7% production increase in 2024 makes Chevron an attractive investment.
Strong Financial Base and Dividend Yield: Chevron maintains a robust financial structure with a significant shareholder payout. The company's dividend yield of above 4% is attractive, particularly for income-focused investors, offering a steady income stream even when share prices are stagnant.
Image Source: Zacks Investment Research
Hess Acquisition: Chevron's impending $53 billion takeover of Hess Corporation (HES - Free Report) and its increased investments in key areas like the Permian Basin and Guyana position it for enhanced production and growth. These strategic moves are likely to pay off in the next few years, providing a solid foundation for future revenue and production increases.
Capital Expenditure and Production Growth: Chevron’s commitment to increasing capital expenditure since 2023, coupled with expected production growth in 2024, highlights its focus on future expansion and efficiency. These investments are crucial for sustaining long-term growth and enhancing shareholder value.
Industry-Leading Return on Capital: Despite recent performance issues, Chevron remains a leader in return on capital employed (ROCE). This metric is crucial for evaluating the efficiency and profitability of a company. Chevron's industry-leading ROCE suggests that it is well-managed and capable of generating substantial returns on its investments.
While Chevron has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.
Risks for the Stock
As alredy discussed, the ongoing volatility in oil prices, due to geopolitical events and OPEC+ decisions, poses significant risks to short-term performance. The broader energy sector is experiencing a period of uncertainty with potential over-supply concerns and fluctuating demand.
Moreover, the company's valuation remains relatively high, which means the stock might not offer an attractive entry point at this time. Chevron's forward earnings multiple is significantly higher than most of its peers. Despite strong financial performance, the elevated valuation indicates that Chevron is expensive relative to other major oil companies, especially the European ones like Shell (SHEL - Free Report) .
Image Source: Zacks Investment Research
Finally, Chevron's planned acquisition of Hess Corporation faces regulatory scrutiny and legal challenges from ExxonMobil (XOM - Free Report) , which claims preemptive rights over the Hess stake, potentially delaying the merger's completion. This uncertainty around the deal's completion introduces a significant risk factor.
Final Word
We believe Chevron's stock offers an attractive risk-reward profile. Despite sector-specific issues such as oil price volatility and regulatory hurdles for acquisitions like Hess, Chevron's proactive measures and strong market position mitigate downside risks. With the company's current stock price weakness, investors have an opportunity to buy into a stable oil giant that offers a promising dividend yield of 4.2%, potentially poised for growth.
One of only two energy stocks on the list of Dividend Aristocrats, the supermajor’s balance sheet is reasonably healthy, indicating that the dividend should remain safe going forward. Chevron's robust financial performance in the first quarter, with $5.5 billion in quarterly earnings and a free cash flow yield of over 5%, underscores its strong profitability and operational efficiency.
Chevron's commitment to returning cash to shareholders was exemplified by $6 billion returned in the most recent quarter. Moreover, eight consecutive quarters of more than $5 billion in cash returns underscores its financial strength and investor-friendly approach.
The stock currently carries a Zacks Rank #2 (Buy).
Image: Shutterstock
Chevron (CVX) Stock Barely Moves in a Month: An Opportunity?
Energy giant Chevron Corporation’s (CVX - Free Report) share price has been trading flat for a while. Over the past month, the San Ramon, CA-based integrated company's stock has inched up 0.4% compared to the S&P 500’s climb of 3.7%. During the same period, the Oil/Energy space and its subindustry have grown 1.2% and 1.7%, respectively.
This performance was caused by uncertainty in the market due to concerns over oil demand and the perception that geopolitical risks to crude supplies are ebbing. Traders had also factored in OPEC+ plans to phase out output cuts starting in October.
Given Chevron’s underperformance, investors are disappointed and uncertain about what to do with their holdings. Moreover, shares are trading below the 50-day moving average, further indicating CVX’s downward trend.
Despite price jitters, the case for Chevron isn’t weakening. It remains one of the best-positioned global integrated oil companies to achieve sustainable production growth and boast an impressive business model.
What Are Chevron’s Strengths?
Long-Term Investment Potential: Chevron’s long-term projects and investments in the oil and gas sector are designed to yield benefits over years or even decades, not quarters. This long-term horizon can provide substantial returns despite short-term market fluctuations. For investors with patience, Chevron's strategic positioning can result in significant future gains once the current market volatility subsides.
Production Growth: Chevron’s buyout of PDC Energy is set to drive substantial production growth, particularly in the DJ Basin. This acquisition, alongside OPEC’s price support, positions Chevron for robust profit expansion. The company's anticipated 4-7% production increase in 2024 makes Chevron an attractive investment.
Strong Financial Base and Dividend Yield: Chevron maintains a robust financial structure with a significant shareholder payout. The company's dividend yield of above 4% is attractive, particularly for income-focused investors, offering a steady income stream even when share prices are stagnant.
Hess Acquisition: Chevron's impending $53 billion takeover of Hess Corporation (HES - Free Report) and its increased investments in key areas like the Permian Basin and Guyana position it for enhanced production and growth. These strategic moves are likely to pay off in the next few years, providing a solid foundation for future revenue and production increases.
Capital Expenditure and Production Growth: Chevron’s commitment to increasing capital expenditure since 2023, coupled with expected production growth in 2024, highlights its focus on future expansion and efficiency. These investments are crucial for sustaining long-term growth and enhancing shareholder value.
Industry-Leading Return on Capital: Despite recent performance issues, Chevron remains a leader in return on capital employed (ROCE). This metric is crucial for evaluating the efficiency and profitability of a company. Chevron's industry-leading ROCE suggests that it is well-managed and capable of generating substantial returns on its investments.
While Chevron has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.
Risks for the Stock
As alredy discussed, the ongoing volatility in oil prices, due to geopolitical events and OPEC+ decisions, poses significant risks to short-term performance. The broader energy sector is experiencing a period of uncertainty with potential over-supply concerns and fluctuating demand.
Moreover, the company's valuation remains relatively high, which means the stock might not offer an attractive entry point at this time. Chevron's forward earnings multiple is significantly higher than most of its peers. Despite strong financial performance, the elevated valuation indicates that Chevron is expensive relative to other major oil companies, especially the European ones like Shell (SHEL - Free Report) .
Finally, Chevron's planned acquisition of Hess Corporation faces regulatory scrutiny and legal challenges from ExxonMobil (XOM - Free Report) , which claims preemptive rights over the Hess stake, potentially delaying the merger's completion. This uncertainty around the deal's completion introduces a significant risk factor.
Final Word
We believe Chevron's stock offers an attractive risk-reward profile. Despite sector-specific issues such as oil price volatility and regulatory hurdles for acquisitions like Hess, Chevron's proactive measures and strong market position mitigate downside risks. With the company's current stock price weakness, investors have an opportunity to buy into a stable oil giant that offers a promising dividend yield of 4.2%, potentially poised for growth.
One of only two energy stocks on the list of Dividend Aristocrats, the supermajor’s balance sheet is reasonably healthy, indicating that the dividend should remain safe going forward. Chevron's robust financial performance in the first quarter, with $5.5 billion in quarterly earnings and a free cash flow yield of over 5%, underscores its strong profitability and operational efficiency.
Chevron's commitment to returning cash to shareholders was exemplified by $6 billion returned in the most recent quarter. Moreover, eight consecutive quarters of more than $5 billion in cash returns underscores its financial strength and investor-friendly approach.
The stock currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.