Chevron was one of the market's biggest losers today, losing 3.3% of its value and underperforming both the S&P500 and Dow Industrial composite indices by -0.0%. The large-cap Energy company ended the day at $161.08, closing in on its 52 week high low of $149.74 and is 14.46% below its average target price of $188.32. Over the last 12 months, Chevron is up 4.0%, and has underperformed the S&P 500 by 19.0%. The stock has an average analyst rating of buy.
Chevron has a trailing 12 month price to earnings (P/E) ratio of 10.2, which corresponds to its share price divided by its trailing earnings per share (EPS) of $15.77. The company's forward P/E ratio is 11.0 based on its forward EPS of $14.7.
Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Energy sector has historically had an average P/E ratio of 7.54. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. Chevron's P/B ratio of 1.9 indicates that the company is fairly valued when compared to the Energy sector's average P/B ratio of 1.68.
To understand Chevron's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-02-24 | 155,606,000 | -89,372,000 | 43 | -8.51 |
| 2021-02-25 | 94,471,000 | -50,488,000 | 47 | 9.3 |
| 2020-02-21 | 139,865,000 | -80,113,000 | 43 | 7.5 |
| 2019-02-22 | 158,902,000 | -94,578,000 | 40 | 33.33 |
| 2018-02-22 | 134,674,000 | -94,892,000 | 30 | 7.14 |
| 2017-02-23 | 110,215,000 | -79,589,000 | 28 |
- Average gross margins: 38.5 %
- Average gross margins growth rate: -0.2 %
- Coefficient of variability (lower numbers indicate more stability): 20.0 %
Next, we consider the Chevron's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-02-24 | 155,606,000 | -50,054,000 | 10 | 266.67 |
| 2021-02-25 | 94,471,000 | -50,080,000 | -6 | -inf |
| 2020-02-21 | 139,865,000 | -59,652,000 | 0 | -100.0 |
| 2019-02-22 | 158,902,000 | -49,878,000 | 9 | 350.0 |
| 2018-02-22 | 134,674,000 | -37,302,000 | 2 | 133.33 |
| 2017-02-23 | 110,215,000 | -36,842,000 | -6 |
- Average operating margins: 1.5 %
- Average operating margins growth rate: 18.2 %
- Coefficient of variability (lower numbers indicate more stability): 465.2 %
Since both Chevron's gross margins and operating margins tend to be positive, we know that its business is currently profitable. However, it's important to take into account their variability and overall growth trend to make a definitive conclusion regarding the company's strength.
Our final point of analysis is Chevron's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for Chevron is as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-02-24 | 29,187,000 | -8,056,000 | 37,243,000 | 91.0 |
| 2021-02-25 | 10,577,000 | -8,922,000 | 19,499,000 | -52.94 |
| 2020-02-21 | 27,314,000 | -14,116,000 | 41,430,000 | -6.71 |
| 2019-02-22 | 30,618,000 | -13,792,000 | 44,410,000 | 55.03 |
| 2018-02-22 | 20,338,000 | -8,308,000 | 28,646,000 | 1.66 |
| 2017-02-23 | 12,846,000 | -15,332,000 | 28,178,000 |
- Average free cash flow: $37.24 Billion
- Average free cash flow growth rate: 0.0 %
- Coefficient of variability (lower numbers indicating more stability): 64178596904.4%
This is the pool of liquidity that the company can use to reinvest in its business and to pay its equity investors a dividend. Investors in Chevron enjoy a dividend yield of 3.5%, and they can expect this to continue based on the company's positive cash flows.
Overall, Chevron seems to be a strong business with an attractive valuation in numeric terms. Potential investors may want to take a closer look at the stock, and focus on whether it also has qualitative factors that show that it can provide solid returns.
