Stock Analysis & Ideas

Ignore the Bears. Chevron Stock (NYSE:CVX) is Enticing

Story Highlights

Chevron wrapped up another stellar year with record operating profits and cash flows along with a massive share buyback program, making the stock attractive.

Oil and gas stock Chevron (NYSE:CVX) dipped after the company reported its fourth-quarter results last Friday. CVX stock was down more than 4% after reporting lower-than-expected earnings in its fourth quarter. However, there was plenty to celebrate for investors following earnings, including record full-year profits and a $75 billion share buyback program. Therefore, investors should avoid being nitpicky and consider buying CVX stock. Hence, we are bullish on CVX stock at this time.

Despite its failure to meet bottom-line expectations, Chevron’s fourth-quarter results were largely positive. Revenue for the quarter came in at an impressive $54.5 billion, higher than analyst estimates of $52.7 billion. Moreover, Chevron’s top-line performance has been staggering over the past few years, growing by an amazing 15.5% compound annual growth rate (CAGR), with a ~37% EBITDA CAGR as well.

Furthermore, the company’s unprecedented $75 billion share repurchase plan demonstrates impressive confidence and shows the company’s commitment to rewarding shareholders. At its current market capitalization, Chevron’s authorization could allow it to buy back more than one-fifth of outstanding shares.

A Solid Earnings Performance

As discussed earlier, Chevron’s earnings results topped expectations on its top line while missing on the bottom line. Oil and gas prices were down from the third quarter, which resulted in the earnings miss, along with write-downs in its international operations. Nevertheless, its fourth-quarter net income improved to $6.35 billion from $5.05 billion in the same period last year, which is a solid result.

Chevron’s record-breaking performance in 2022 exemplifies its strength and resilience as one of the nation’s largest oil producers. Its earnings more than doubled from the previous year and exceeded its prior high set in 2011 by over $10 billion. Despite some headwinds due to higher costs and weaker oil prices, Chevron leveraged its resources to end the year with aplomb.

Moreover, CVX posted a record cash flow from operations of $49.6 billion and a free cash flow of $37.6 billion during the year. Additionally, its levered free cash flow and operating cash flow increased by 122% and 70%, respectively. Therefore, the firm has plenty of room to continue boosting its dividend payouts and eye-catching dividend buyback program.

Also, its fourth-quarter “Revenues and Other Income” surged 17% year-over-year to an impressive $56.47 billion. Chevron ended the year with a total revenue tally of $246.3 billion, up from the prior year’s total of $162.5 billion.

Is CVX Stock a Buy, According to Analysts?

Turning to Wall Street, CVX stock maintains a Moderate Buy consensus rating. Out of 16 total analyst ratings, six Buys, eight Holds, and two Sell ratings were assigned over the past three months.

The average CVX stock price target is $192.80, implying 12.5% upside potential. Analyst price targets range from a low of $161 per share to a high of $215 per share.

The Takeaway

Chevron is a fundamentally strong energy stock that has continued to prove its commitment to investors through consistent dividend payments amid a challenging market. Its dividend has grown over 35 consecutive years and is now yielding over 3.5%. Furthermore, its payout ratio is at just 32.4%, indicating healthy wiggle room for expansion. Layer that up with its massive buyback program, and you have arguably one of the more attractive income stocks out there.

Shareholders can be confident in a dependable dividend payout, increasing production, and reduced debt over time. The firm’s debt dropped precipitously over the past year by a whopping $7.2 billion, and we expect its debt levels to continue dropping at a healthy pace.

CVX’s well-rounded natural gas, oil, and refining logistics portfolio has made it a popular stock. Long-term investors or those looking for stability within their portfolio should consider adding Chevron before the stock potentially surges again.

Despite the quality of its business, robust outlook, and incredible track record, CVX stock is trading at 1.5x analysts’ forward sales estimates, about 20% lower than its five-year average multiple. All in all, plenty is going right for CVX at this time.


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