Stock Analysis & Ideas

Why Chevron Stock is Still Attractive Despite Rallying

Story Highlights

Although Chevron has been rallying very strongly this year, it still has competitive advantages that leave it well-positioned for more growth and upside. Also, due to macroeconomic issues, oil prices can stay elevated for quite some time, directly benefiting energy stocks like Chevron. Is it worth buying at current prices?

With all the geopolitical tensions between Russia and Ukraine, the oil and gas sector has been performing well, as energy sector stocks are rallying. Chevron (CVX) is one such energy stock that has benefited immensely from rising energy prices and the widespread energy crunch. It has gained close to 50% year-to-date.

Looking at its strong fundamentals and excellent future prospects, the market, in general, is extremely bullish about the stock’s future. Chevron stock is possibly one of the best picks for investors these days that intend to venture into the energy sector or simply increase their energy stock exposure. Moreover, Warren Buffett’s Berkshire Hathaway has also increased its stake in Chevron stock. I am bullish on CVX stock.

Chevron Corporation is a California-based multinational energy corporation engaged in integrated energy and chemicals operations and has its operations spread across more than 180 countries worldwide.

It has two main segments: Upstream and Downstream. The Upstream segment deals with the exploration, processing, liquefaction, transportation, and storage of crude oil and natural gas.

The Downstream segment is all about the refining of crude oil and petroleum products and other related operations. Also, the company engages in cash management and debt financing activities as well as insurance-related services.

With a market capitalization of $343 billion, Chevron has rebounded largely from the pandemic lows and is one of the leading energy stocks. To reap maximum benefits from rising oil prices, the company has increased its production in the Permian Basin, which is its largest production area in the U.S., to a record 692,000 barrels of oil equivalent per day in the first quarter.

It intends to produce between 700,000 and 750,000 barrels per day for this year. Further, by 2025 it has planned to raise the Permian Basin’s output to 1 million barrels a day. All these indicate this stock’s bullish run can continue, even as oil and natural gas prices continue to rise.

Devin McDermott, a Wall Street Analyst from Morgan Stanley, is also of the opinion that Chevron Stock is worth holding and had given it a Hold rating a month back. Moreover, he also raised the price target on the stock from $166 to $188 while maintaining an equal-weight rating on it.

Strong Financials

Chevron’s profit has more than quadrupled during the first quarter of 2022, and its revenues rose by $22.34 billion to $54.37 billion year-over-year. Earnings came in at $6.3 billion during the first quarter, which was almost 365% higher than the net income of $1.37 billion reported during the same period a year ago.

The Upstream segment had made the most contribution to Chevron’s earnings. Earnings from U.S. Upstream operations had risen to $3.24 billion compared to the previous year’s $941 million, while International Upstream operations depicted earnings of $3.7 billion against $1.41 billion last year. As you can see in the image below, CVX’s earnings have been improving over the past two years.

Wall Street’s Take

Turning to Wall Street, Chevron stock has a Moderate Buy consensus rating based on 14 Buys, nine Holds, and one Sell rating assigned in the past three months. The average Chevron price target of $173.33 implies 0.8% downside potential.

Crude Oil Supply Shortage Can Continue

During the onset of the pandemic, fueled by high uncertainty, the prices of crude oil had almost dropped into the negative territory. The lack of demand for crude was such that some companies had to even pay others to prevent the overflowing storage of oil. The effect of that persistent underinvestment in oil during that time is still affecting the market adversely to this day.

Since last year, with the recovery in oil prices, organizations did start investing once again. Still, a lot more time will be required to get back to the pre-pandemic levels, as developing and producing oil wells is a very slow process and usually requires at least a couple of years to function properly. Moreover, the Russia Ukraine conflict is adding up to this supply crisis scenario as Russia itself has an 8% share in the global oil supply.

Therefore, upon combining the supply shortage situation with the recovery in oil demand due to increased levels of travel, commute, and manufacturing around the world, it is expected that oil prices will stay at higher levels for some more time. This lets companies like Chevron make a lot of cash.

Solid Prospects

It is evident from the ongoing geopolitical tensions that the world is not yet completely ready to replace oil and natural gas with alternative sources of energy. Oil is still integral to the global economy, and the existing clean energy infrastructure would still require reasonable time to match up with the levels of oil.

This provides companies like Chevron with a significant edge. Moreover, to mitigate the risks relating to changes in consumer preferences in the future, the company has set some ambitious targets in the renewable energy sector.

Notably, Chevron will be expanding its operations by entering a licensing agreement with the Venezuelan government and will also scale up its operations in Mexico’s Gulf region through a $1.6 billion deepwater project.


It is always worth investing in growth stocks, and Chevron is a growing company with solid fundamentals. The best thing about CVX stock is that other than providing its investors with some solid capital appreciation, the company also pays out robust and lucrative dividends and has a dividend yield of about 3.2%.

Therefore, investors that are looking for a stable stock with long-term prospects might want to consider putting their money in Chevron. 

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