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Chevron Stock Near 52-Week Lows: Is It Good Enough to Invest?
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Shares of Chevron Corporation (CVX - Free Report) have dropped by nearly 9% over the past three months to close at $142.07 on Wednesday, near 52-week lows of $139.62. Having underperformed its rival ExxonMobil (XOM - Free Report) , the sector and the S&P 500, the company’s current share price seems an excellent opportunity to build a position in a renowned company — after all you would much rather buy closer to the low than the high, right?
3-Month Price Performance
Image Source: Zacks Investment Research
Let’s now take a close look at Chevron, with an eye on where it stands after falling so much, along with what we can expect going forward.
About Chevron
Chevron is one of the largest publicly traded oil and gas companies in the world, with operations that span almost every corner of the globe. The only energy component of the Dow Jones Industrial Average, San Ramon, CA-based Chevron, is fully integrated, meaning it participates in every aspect related to energy – from oil production, to refining and marketing.
What’s Dragging Down CVX Stock?
Economic Downturn Risks and Exposure to Oil Price Fluctuations: The ongoing volatility in oil prices due to recession fears and indications of weak Chinese demand, poses significant risks to Chevron's short-term performance. The broader energy sector is experiencing a period of uncertainty with potential over-supply concerns and fluctuating consumption. With crude falling to the lowest since last December, annual EPS estimates for Chevron have been revised downward over the past 30 days, reflecting concerns about the company’s near-term profitability.
Image Source: Zacks Investment Research
Earnings Miss & Negative Sentiment From Arbitration Delays: On Aug 2, 2024, Chevron announced its second-quarter 2024 results, which fell short of expectations primarily due to weaker natural gas realizations and reduced margins on refined products. This earnings miss has contributed to the bearishness, further exacerbated by the delayed arbitration hearing concerning Chevron's impending $53 billion takeover of Hess Corporation (HES - Free Report) . The hearing, initially scheduled for later this year, has been pushed to May 2025 due to competing claims over Hess’ Guyana assets, creating uncertainty.
Elevated Valuation With Minimal Free Cash Flow: Chevron’s high valuation, with a forward earnings multiple of more than 10, makes the stock expensive relative to other major oil companies, especially the European ones. The company’s free cash flow yield of only 7% raises doubts about its capacity to sustain dividend payments. Although Chevron maintains a low debt-to-capitalization of around 12.7%, its diminishing cash reserves — driven by elevated capital expenditures and aggressive share buybacks — could hinder its ability to manage future market volatility effectively.
Downstream Woes: Chevron's downstream segment is experiencing margin compression. In the second quarter of 2024, downstream earnings fell due to lower refining margins and increased operational expenses. With WTI prices flling to a nine-month low of under $70, downstream margins may remain constrained. This could affect Chevron's ability to capitalize on refining operations and reduce overall profitability, especially if refining margins continue to narrow.
Long-Term Prospects to Drive Chevron Stock
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.
Robust Production Growth in Key Assets: Chevron's production growth is impressive, with domestic output driven by the Permian and DJ Basins. Full-year Permian volumes are expected to grow by 15%, with Q4 production anticipated around 940,000 barrels per day. Then, Chevron’s buyout of PDC Energy is already driving substantial production growth in the DJ Basin. The company's anticipated 4-7% production increase in 2024 makes Chevron an attractive investment.
Strategic New ProjectsEnhancing Future Prospects: Last month’s start-up of the Anchor project in the Gulf of Mexico (GoM) highlights Chevron’s project management capabilities. This project, achieved under budget, exemplifies Chevron's strategic focus on cost-effective, reliable oil sources. With an estimated 440 million barrels of oil equivalent in recoverable resources, Anchor is poised to significantly contribute to Chevron's production goals, aiming to double its output from the GoM to 300,000 barrels of oil equivalent per day by 2026.
High Dividend Yield, Strong Shareholder Returns: Chevron has a well-established dividend track record, having increased its payout for 37 consecutive years. 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. Despite a lofty valuation, Chevron's focus on shareholder returns is evident through its substantial $6 billion payout in the recent quarter.
Industry-Leading Return on Capital: 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 or around 12% suggests that it is well-managed and capable of generating substantial returns on its investments.
Image Source: Zacks Investment Research
CVX Stock Holds Promise
While CVX has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored. Investors should note that any dip in oil prices is going to hurt Chevron, whose production profile is heavily tilted toward crude. It has also been facing some headwinds on the Hess merger front. But Chevron remains one of the best-positioned global integrated oil companies to achieve sustainable production growth and boast an impressive business model. CVX offers solid fundamentals with a long track record of capital returns.
Overall, the outlook is largely neutral for CVX shares. Chevron stock currently carries a Zacks Rank #3 (Hold).
Image: Bigstock
Chevron Stock Near 52-Week Lows: Is It Good Enough to Invest?
Shares of Chevron Corporation (CVX - Free Report) have dropped by nearly 9% over the past three months to close at $142.07 on Wednesday, near 52-week lows of $139.62. Having underperformed its rival ExxonMobil (XOM - Free Report) , the sector and the S&P 500, the company’s current share price seems an excellent opportunity to build a position in a renowned company — after all you would much rather buy closer to the low than the high, right?
3-Month Price Performance
Let’s now take a close look at Chevron, with an eye on where it stands after falling so much, along with what we can expect going forward.
About Chevron
Chevron is one of the largest publicly traded oil and gas companies in the world, with operations that span almost every corner of the globe. The only energy component of the Dow Jones Industrial Average, San Ramon, CA-based Chevron, is fully integrated, meaning it participates in every aspect related to energy – from oil production, to refining and marketing.
What’s Dragging Down CVX Stock?
Economic Downturn Risks and Exposure to Oil Price Fluctuations: The ongoing volatility in oil prices due to recession fears and indications of weak Chinese demand, poses significant risks to Chevron's short-term performance. The broader energy sector is experiencing a period of uncertainty with potential over-supply concerns and fluctuating consumption. With crude falling to the lowest since last December, annual EPS estimates for Chevron have been revised downward over the past 30 days, reflecting concerns about the company’s near-term profitability.
Earnings Miss & Negative Sentiment From Arbitration Delays: On Aug 2, 2024, Chevron announced its second-quarter 2024 results, which fell short of expectations primarily due to weaker natural gas realizations and reduced margins on refined products. This earnings miss has contributed to the bearishness, further exacerbated by the delayed arbitration hearing concerning Chevron's impending $53 billion takeover of Hess Corporation (HES - Free Report) . The hearing, initially scheduled for later this year, has been pushed to May 2025 due to competing claims over Hess’ Guyana assets, creating uncertainty.
Elevated Valuation With Minimal Free Cash Flow: Chevron’s high valuation, with a forward earnings multiple of more than 10, makes the stock expensive relative to other major oil companies, especially the European ones. The company’s free cash flow yield of only 7% raises doubts about its capacity to sustain dividend payments. Although Chevron maintains a low debt-to-capitalization of around 12.7%, its diminishing cash reserves — driven by elevated capital expenditures and aggressive share buybacks — could hinder its ability to manage future market volatility effectively.
Downstream Woes: Chevron's downstream segment is experiencing margin compression. In the second quarter of 2024, downstream earnings fell due to lower refining margins and increased operational expenses. With WTI prices flling to a nine-month low of under $70, downstream margins may remain constrained. This could affect Chevron's ability to capitalize on refining operations and reduce overall profitability, especially if refining margins continue to narrow.
Long-Term Prospects to Drive Chevron Stock
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.
Robust Production Growth in Key Assets: Chevron's production growth is impressive, with domestic output driven by the Permian and DJ Basins. Full-year Permian volumes are expected to grow by 15%, with Q4 production anticipated around 940,000 barrels per day. Then, Chevron’s buyout of PDC Energy is already driving substantial production growth in the DJ Basin. The company's anticipated 4-7% production increase in 2024 makes Chevron an attractive investment.
Strategic New Projects Enhancing Future Prospects: Last month’s start-up of the Anchor project in the Gulf of Mexico (GoM) highlights Chevron’s project management capabilities. This project, achieved under budget, exemplifies Chevron's strategic focus on cost-effective, reliable oil sources. With an estimated 440 million barrels of oil equivalent in recoverable resources, Anchor is poised to significantly contribute to Chevron's production goals, aiming to double its output from the GoM to 300,000 barrels of oil equivalent per day by 2026.
High Dividend Yield, Strong Shareholder Returns: Chevron has a well-established dividend track record, having increased its payout for 37 consecutive years. 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. Despite a lofty valuation, Chevron's focus on shareholder returns is evident through its substantial $6 billion payout in the recent quarter.
Industry-Leading Return on Capital: 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 or around 12% suggests that it is well-managed and capable of generating substantial returns on its investments.
CVX Stock Holds Promise
While CVX has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored. Investors should note that any dip in oil prices is going to hurt Chevron, whose production profile is heavily tilted toward crude. It has also been facing some headwinds on the Hess merger front. But Chevron remains one of the best-positioned global integrated oil companies to achieve sustainable production growth and boast an impressive business model. CVX offers solid fundamentals with a long track record of capital returns.
Overall, the outlook is largely neutral for CVX shares. Chevron stock currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.