CVX

Read This to Understand Chevron Stock

We've been asking ourselves recently if the market has placed a fair valuation on Chevron. Let's dive into some of the fundamental values of this large-cap Energy company to determine if there might be an opportunity here for value-minded investors.

Chevron's Valuation Is in Line With Its Sector Averages:

Chevron Corporation, through its subsidiaries, engages in the integrated energy and chemicals operations in the United States and internationally. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Chevron has a trailing 12 month P/E ratio of 10.8 and a P/B ratio of 1.65.

When we divide Chevron's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.51. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.

Growing Revenues With a Flat Capital Expenditure Trend:

2018 2019 2020 2021 2022 2023
Revenue (MM) $166,339 $146,516 $94,692 $162,465 $246,252 $210,242
Gross Margins 12% 4% -8% 13% 20% 17%
Operating Margins 12% 4% -8% 13% 20% 17%
Net Margins 9% 2% 0% 10% 14% 12%
Net Income (MM) $14,860 $2,924 -$18 $15,689 $35,608 $25,546
Net Interest Expense (MM) $748 $798 $697 $712 $516 $472
Depreciation & Amort. (MM) $19,419 $29,218 $19,508 $17,925 $16,319 $15,836
Earnings Per Share $7.74 $1.54 -$2.96 $8.14 $18.28 $13.47
Diluted Shares (MM) 1,914 1,895 1,870 1,920 1,940 1,752
Free Cash Flow (MM) $16,826 $13,198 $1,655 $21,131 $37,628 $20,370
Capital Expenditures (MM) $13,792 $14,116 $8,922 $8,056 $11,974 $15,303
Net Current Assets (MM) -$64,200 -$63,891 -$80,986 -$65,857 -$47,124 -$55,947
Long Term Debt (MM) $40,823 $37,246 $55,529 $46,879 $37,687 $39,425
Net Debt / EBITDA 0.9 0.97 4.19 1.03 0.31 0.65

Chevron has growing revenues and a flat capital expenditure trend, low leverage, and positive EPS growth. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a positive growth rate. Finally, we note that Chevron has irregular cash flows.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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