On October 27, 2023, Chevron Corp (CVX, Financial) experienced a daily loss of -5%, contributing to a 3-month loss of -7.3%. Despite this, Chevron (CVX) reported a robust Earnings Per Share (EPS) of 15.77. This raises the question: Is Chevron's stock modestly undervalued? In this article, we will delve into a valuation analysis of Chevron, examining its financial strength, profitability, and growth. We invite you to read on for a comprehensive understanding of Chevron's current market value.
A Snapshot of Chevron Corp (CVX, Financial)
Chevron is an integrated energy company with exploration, production, and refining operations worldwide. As the second-largest oil company in the United States, it produces 3.0 million barrels of oil equivalent a day, including 7.7 million cubic feet a day of natural gas and 1.7 million barrels of liquids a day. Chevron's production activities span North America, South America, Europe, Africa, Asia, and Australia, with refineries in the U.S. and Asia. As of the end of 2022, Chevron's proven reserves stood at 11.2 billion barrels of oil equivalent.
The company's current stock price is $147.01, while its intrinsic value, as estimated by the GF Value, is $176.31, suggesting that Chevron's stock is modestly undervalued. This discrepancy prompts a deeper exploration of Chevron's value.
Understanding the GF Value
The GF Value is a proprietary measure developed by GuruFocus to estimate the intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the stock's fair trading value, calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- A GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. For Chevron, the stock is estimated to be modestly undervalued, suggesting that the long-term return of its stock is likely to be higher than its business growth.
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Chevron's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss, making it crucial for investors to review a company's financial strength before purchasing shares. Chevron has a cash-to-debt ratio of 0.45, ranking worse than 51.84% of 1034 companies in the Oil & Gas industry. However, GuruFocus ranks Chevron's financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Chevron has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $214.10 billion and an Earnings Per Share (EPS) of $15.77. Its operating margin is 15.91%, which ranks better than 62.25% of 988 companies in the Oil & Gas industry. Overall, the profitability of Chevron is ranked 7 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. The 3-year average annual revenue growth of Chevron is 18.1%, ranking better than 64.62% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 22.4%, ranking better than 60.48% of 825 companies in the Oil & Gas industry, indicating strong growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Chevron's ROIC was 11.64, while its WACC came in at 10.88.
Conclusion
In conclusion, the stock of Chevron Corp (CVX, Financial) is estimated to be modestly undervalued. The company's financial condition is strong, its profitability is fair, and its growth ranks better than 60.48% of 825 companies in the Oil & Gas industry. To learn more about Chevron stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
