Up 7% So Far, What Lies Ahead For Chevron’s Stock Post Q2 Results?

Chevron Corporation (NYSE: CVX), a company manufacturing and selling a range of refined petroleum products, including gasoline, diesel, marine, and aviation fuels, premium base oil, finished lubricants, and fuel oil additives, is scheduled to announce its fiscal second-quarter results on Friday, August 2. We expect the company’s stock to likely trade higher with its revenues and earnings beating market expectations marginally in its second quarter results. CVX stock has increased from around $149 to $160 this year, whereas its peer Exxon Mobil (NYSE: XOM) stock is up 18% YTD to $118. Chevron’s relatively poor stock performance compared to its peer is likely the result of investor concerns surrounding the pending $53 billion acquisition of Hess. Upon closing of the deal, Chevron will acquire 465,000 acres in the Bakken Shale, and will add substantial oil-equivalent production to its already expansive portfolio in Guyana. However, there’s a major roadblock. Hess and Exxon are partners in a large energy project in Guyana, and XOM believes it has the right to buy Hess out of the project if it sells itself to Chevron. That project is likely one of the main reasons why Chevron wants to buy Hess, so this could rush the Hess acquisition or, at the very least, make it a less desirable purchase. CVX shares are facing the brunt of this uncertainty because of the doubts around what is a very large acquisition. Chevron has a diversified business with exposure to the entire energy value chain, but still, oil prices are a big driver of financial performance. The supply cuts from Saudi Arabia and Russia, and persistent demand in Europe, have helped to build a more supportive environment for oil prices currently. Even if the oil price trends lower going forward, Chevron is among the lowest-cost producers, so it can still generate a tremendous amount of cash. Given that Brent crude oil is currently at ~$80 per barrel at the time of this writing, Chevron is set up nicely to return a lot of capital to shareholders in the long term.

CVX stock has seen extremely strong gains of 90% from levels of $85 in early January 2021 to around $160 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the increase in CVX stock has been far from consistent. Returns for the stock were 39% in 2021, 53% in 2022, and -17% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that CVX underperformed the S&P in 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Energy sector including XOM, COP, and BP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CVX face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that Chevron’s valuation is around $173 per share, which is 10% higher than the current market price. Look at our interactive dashboard analysis on Chevron Earnings Preview: What To Expect in Q2? for more details.

(1) Revenues expected to come in ahead of consensus estimates marginally

Trefis estimates Chevron’s Q2 2024 revenues to be around $52.4 Bil, slightly ahead of the consensus estimate. Q1 worldwide production rose 12% y-o-y to 3.3 million barrels of oil equivalent (boe)/day, including a 35% surge in U.S. output to 1.57 million boe/day, due mostly to the acquisition of PDC Energy and strong operational performance in the Permian and DJ Basins in the U.S. and the Tengizchevroil affiliate in Kazakhstan. Chevron plans to aggressively ramp up production from the Permian Basin, a potential early sign that U.S. oil output may exceed expectations in 2024. However, the company’s international production fell 2.2% to 1.77 million boe/day. It should be noted that U.S. natural gas realization plunged 51.9% y-o-y while international realization fell 19.4% in Q1.

(2) EPS likely to slightly beat consensus estimates 

Chevron’s Q2 2024 earnings per share (EPS) is expected to be $2.96 as per Trefis analysis, marginally beating the consensus estimate. While the energy giant’s earnings declined, it produced a solid first quarter overall thanks to the strength of its U.S. upstream business. Q1 net income fell to $5.5 billion, or $2.97 per share, from $6.57 billion, or $3.46 per share, in the year-earlier quarter, as upstream earnings edged 1.5% year-over-year (y-o-y) higher to $5.24 billion but downstream fell 56% to $783 million.

(3) Stock price estimate higher than the current market price

Going by our Chevron’s Valuation, with an EPS estimate of around $12.75 and a P/E multiple of around 13.6x in fiscal 2024, this translates into a price of about $173, almost 10% higher than the current market price. It should be noted that we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.

It is helpful to see how its peers stack up. Chevron Peers shows how CVX stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/31/2024
[2] Cumulative total returns since the end of 2016