Chevron Corporation (NYSE: CVX), a prominent player in the refined petroleum products industry, is gearing up to disclose its fiscal fourth-quarter results on February 2. Expectations are high as many anticipate an upward trend in the company’s stock following an impressive performance in revenue and earnings for the quarter. Chevron’s multifaceted business model provides a broad exposure to the energy value chain, with oil prices remaining a pivotal factor influencing its financial performance. The positive impact of OPEC’s production cuts on oil prices in 2023 has been a significant boon for Chevron’s profitability. Should oil prices mitigate in the future, Chevron’s position as one of the lowest-cost producers positions it favorably to continue generating substantial cash flow. With Brent crude oil currently standing at $81 per barrel, Chevron is well positioned to promise hefty returns for its shareholders.
CVX stock has experienced a roller-coaster ride, jumping 75% from about $85 in early 2021 to approximately $150 now, outperforming the S&P 500’s 30% increase over the past three years. However, the stock’s growth has been far from smooth, registering a 39% increase in 2021, a 53% increase in 2022, and a troublesome 17% drop in 2023, in sharp contrast to S&P 500’s 27% gain, 19% decline, and 24% increase in the same respective years. This inability to consistently outperform the S&P 500 has been a common challenge for various individual stocks, including major energy sector players such as XOM, COP, and PBR, as well as tech giants like GOOG, TSLA, and MSFT.
In stark contrast, Trefis’ High Quality (HQ) Portfolio, comprising 30 stocks, has outperformed the S&P 500 every year over the same period. The impressive performance of this portfolio likely stems from lower risks and consistent returns. With the current volatile macroeconomic backdrop of soaring oil prices and elevated interest rates, the looming question is whether Chevron might face another year of underperformance akin to 2023 or emerge with a powerful resurgence in the coming 12 months.
Our analysis pegs Chevron’s valuation at around $162 per share, displaying a 10% upside potential from the current market price. For more comprehensive details on Chevron’s earnings outlook for Q4, readers can peruse our interactive dashboard analysis on Chevron Earnings Preview: What To Expect in Q4?.
Positive Indications in Q4 Results
(1) Revenues expected to surpass consensus estimates
Trefis projects Chevron’s Q4 2023 revenues to hover around $49.7 billion, slightly surpassing the consensus estimate. The company’s third-quarter revenues witnessed a 19% year-over-year decline to $54.1 billion, primarily attributable to lower upstream realizations and refined product sales margins. Nevertheless, Chevron’s Q3 net oil production surged by 20% year-over-year to 231k barrels of oil equivalent per day, benefiting from the acquisition of PDC Energy which contributed 179K boe/day during the quarter, along with net production hikes in the Permian Basin. The company is strategically positioned to capitalize on its growing operations in the Permian Basin, with ambitious plans in place to yield over $4 billion in free cash flow from oil production by 2026.
Chevron is actively reducing its carbon footprint by investing in hydrogen and alternative fuels derived from renewable feedstocks rather than fossil fuels. The recent $6.3 billion acquisition of PDC Energy, a U.S. onshore energy producer, serves the dual purpose of augmenting the company’s oil reserves and curbing the carbon intensity of its energy production.
(2) EPS likely to modestly exceed consensus estimates
Chevron’s Q4 2023 earnings per share (EPS) is anticipated to touch $3.15 as per Trefis analysis, slightly ahead of the consensus estimate. In Q3, the company’s net income shortened to $6.5 billion, or $3.48 per share, from $11.2 billion, or $5.78 per share, in the corresponding prior-year quarter. CVX’s upstream earnings plummeted by 38% year-over-year to $5.76 billion, with U.S. Upstream down 39% to $2.07 billion and International Upstream down 38% to $3.68 billion. Additionally, its downstream earnings decreased by 33% year-over-year to $1.68 billion.
(3) Stock price estimate outpaces the current market price
Further analysis of Chevron’s Valuation indicates that with an EPS estimate of roughly $13.24 and a P/E multiple of about 12.2x in fiscal 2023, the derived price amounts to approximately $162, presenting a nearly 10% upside from the current market price. It’s essential to note that our assessment evaluates core sales revenue, excluding income generated from hydrocarbon distribution, processing, and marketing, among other sources.
| Returns | Feb 2024 MTD [1] | Since start of 2023 [1] | 2017-24 Total [2] |
| CVX Return | 0% | -18% | 25% |
| S&P 500 Return | 0% | 26% | 116% |
| Trefis Reinforced Value Portfolio | -1% | 37% | 603% |
[1] Returns as of 2/1/2024
[2] Cumulative total returns since the end of 2016
Investors may consider exploring Trefis Market-Beating Portfolios for insightful investment opportunities. A comprehensive collection of stock price estimates including peer comparisons is available on Trefis Price Estimates.
