Chevron (CVX) is an American multinational energy company. It follows a vertically integrated business model, giving it tremendous strength over its competitors. I am bullish on the stock.
Expansion in Myanmar
Chevron has acted in a contrarian manner by increasing its ownership of a gas project in Myanmar shortly after claiming it would abandon the area following last year’s military coup.
It’s reported that Chevron will assume TotalEnergies’ (TTE) 31.2% stake in the Yadana gas field and the 250-mile MGTC pipeline. TotalEnergies booked a $305 million impairment loss on its assets in Myanmar without accepting compensation for any of its offloaded projects, suggesting that Chevron has potentially snapped up a bargain deal.
Chevron’s management claimed the acquisition “will provide greater control over incoming JV parties,” which seems obscure if one considers how other energy producers exited the arena.
In a nutshell, Chevron has claimed it would back out of Myanmar. However, it has done the exact opposite, and actions speak louder than words. It would thus be rudimentary of its stakeholders to assume that the firm won’t continue operating in the area.
Venezuela Plea
In an attempt to leverage its market position, Chevron has made a request to the White House that sanctions be eased in Venezuela in order to access the vast oil reserves on the Nation’s coastline.
Chevron has claimed that it will be able to double Venezuela’s daily oil production of 800k BOE/d in a matter of months. It’s said that Chevron has been pushing for a deal for months, which could come to fruition after the United States cut its ties with Russian oil suppliers.
Leaders at Chevron think a deal with Venezuela could easily replace the 700K BOE/d deficit the U.S. is facing from the ex-Russia supply. However, the White House has claimed that there’s been no dialogue between Maduro’s government and itself; however, local pressure is mounting, and if Venezuela is deemed a proxy, Chevron will likely be the breadwinner.
Supply-Chain Dominance Justifies Valuation
There’s no doubting that Chevron’s facing a few stumbling blocks within its downstream operations as an increasing number of U.S. citizens are becoming unhappy with the cost of gas. Fortunately enough for CVX investors, we’re talking about a vertically integrated company with a stronghold vastly profitable in up and midstream projects.
Compared to its own historical multiple, Chevron’s P/E ratio is trading at a five-year discount of 19.2%. This means that Chevron is part of a cyclical upturn and is still undervalued relative to its earnings. The firm’s earnings will likely persist for as long oil & gas prices remain elevated, as it ensures that the firm’s up and midstream projects will prosper.
Wall Street’s Take
Turning to Wall Street, Chevron has a Moderate Buy consensus rating, based on 15 Buys, seven Holds, and one Sell assigned in the past three months.
The average Chevron price target of $161.43 implies 3.2% downside potential. However, this is likely to change as matters in Ukraine find calm.
Concluding Thoughts
Chevron is finding itself in a few dangerous ponds, which could tarnish its corporate image somewhat. However, from an investors’ vantage point, the stock is still on firm grounds as operations remain robust.
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