$CVX - Chevron: Learn why Chevron may be the best energy pick of 2022

$CVX - Chevron Corp. is a global leader in the oil & gas space, that operates in both the upstream and downstream segments. In their upstream segment, Chevron is engaged in the exploration, development, transportation, and production of crude oil and natural gas. In their downstream segment, Chevron is engaged in the refining of crude oil into petroleum products, marketing both crude oil and refined products, and the transportation of both their crude products and their refined products. Investment Information: SEC Filings: Current Report (8-K) On January 28th, 2022, Chevron released their Q4 earnings report $5.1B in Q4 earnings ($15.6B annually), Free Cash Flow of $21.1B in 2021, $11.6B worth of share repurchases or dividends paid out in 2021, and a Full-Year EPS of $8.14. ESG Initiatives: In September of 2021, Chevron released their “Energy Transition Spotlight” presentation, which outlines their thoughts on the climate crisis, and how they plan to change their business going forward to be better for the environment. Firstly, Chevron highlighted their plan to reducing emission (“pathway to net zero”) which shows that they are planning to reduce their emissions by investing in renewable, hydrogen, and carbon capturing projects. Chevron has estimated that their plans should puut them on track to reduce their GHG’s by 35% by 2028. Chevron also realizes that there is large growth opportunities in the renewable “low carbon” energy sector, and they have outlined multiple project that can help them to tap into that market. Furthermore, Chevron has highlighted that the renewable diesel and sustainable aviation, and renewable base oils & lubricant sectors can grow by 200% and 1900% by 2025 (44% and 171% annual growth rates) respectively. These high growth prospects can help Chevron to grow their revenues and potentially avoid the 2.88% decrease rate expected in oil. Management Team: This sectioned is designed to give you (the reader) insight into the background of the highest (executive) managers/officers at Asbury. The following people are listed as the highest-ranking members of the Chevron Management Team. Michael Wirth (Chairman of the Board & Chief Executive Officer): Mr. Wirth, 61, is chairman of the board and chief executive officer of Chevron Corporation. He was elected to these positions by Chevron’s board of directors in September 2017 and has assumed the role since February 2018. Prior to his current role, Wirth served as vice chairman of the board in 2017 and executive VP of Midstream & Development for Chevron from 2016 – 2018. In that role, he was responsible for supply and trading, shipping, pipeline and power operating units, as well as corporate strategy; business development; and policy, government and public affairs. Wirth was executive VP of Downstream & Chemicals from 2006 to 2015. Prior to that, he served as president of Global Supply and Trading from 2003 to 2006. Pierre Breber (VP & Chief Financial Officer): Mr. Breber, 57, is Chevron’s VP and CFO, a position he assumed in 2019. He is responsible for controller, tax, treasury, audit and investor relations activities worldwide. Previously Breber served as executive vice president of Downstream and Chemicals since 2016. Additionally, Breber was executive VP of Gas and Midstream. With more than 25 years of service, Breber has served in a number of leadership positions with increasing responsibilities. Eimear Bonner (VP & Chief Technology Officer): Ms. Bonner, 47, has been serving as the VP and CTO since 2021. She also serves as president of the Chevron Technical Center, which provides expertise to drive the application of technology, initiatives to transform Chevron’s digital future and innovative breakthrough technology to support the future of energy. Previously Bonner served as general director of Chevron’s largest joint venture, Tengizchevroil (TCO), in Kazakhstan since 2018. Prior to that, Bonner led the TCO organization and was responsible for ensuring strong business performance, advancing a major expansion project, and managing relationships with stakeholders in the Kazakhstan government. Bonner’s previous leadership roles include deputy managing director of Chevron’s Eurasia Business Unit, an asset manager in Chevron Thailand, and general manager of Corporate Strategy. As you can see, Chevron’s highest level management officers all have rich histories at the company and in their respective fields. Furthermore, they have all spent long periods of time advancing into higher roles within Chevron, which should imply that they all have extensive knowledge of the company from the ground up. Competitors: In order to undergo the comparable analysis, we need to get an idea of their closest competitors. These competitors must operate in the same space, operate in similar geographies, be of similar market cap, and have valid financial ratios. Using this criterion, I came up with the following. $XOM – Exxon Mobil Corp: Exxon explores for and produces crude oil and natural gas in the internationally. It operates through Upstream, Downstream, and Chemical segments. The company is also involved in the manufacture, trade, transport, and sale of crude oil, natural gas, and petroleum products; and manufactures and sells petrochemicals, including olefins, polyolefins, aromatics, and various other petrochemicals. As of December 31, 2020, it had approximately 22,239 net operated wells with proved reserves. $SU -Suncor Inc: Suncor focuses on developing petroleum resource basins in Canada's Athabasca oil sands. Suncor explores, acquires, develops, produces, transports, refines, and markets crude oil internationally. Furthermore, Suncor markets petroleum and petrochemical products under the Petro-Canada (in Canada). The Oil Sands segment of Suncor business recovers bitumen from mining operations, and upgrades it into refinery feedstock and diesel fuel, for direct sale to market. The Exploration and Production segment is involved in offshore operations in Canada and internationally. The Refining and Marketing segment refines crude oil and intermediate feedstock into various petroleum and petrochemical products; and markets refined petroleum products to retail, commercial, and industrial customers through its other retail sellers. $BP – BP PLC: BP engages in the energy business worldwide. BP produces and trades natural gas; offers biofuels; operates onshore and offshore wind power; and provides de-carbonization solutions and services. BP is also involved in the convenience and mobility business, which manages the sale of fuels to wholesale and retail customers, as well as operation of electric vehicle charging facilities. In addition, BP produces and refines oil and gas; and invests in upstream, downstream, and alternative energy companies. $CVE -Cenovus Energy Inc: Cenovus develops, produces, and markets crude oil, natural gas liquids, and natural gas internationally. Cenovus operates through the Oil Sands, Conventional, and Refining and Marketing segments. The Oil Sands segment develops and produces bitumen in northeast Alberta. The Conventional segment holds assets in the operating areas of British Columbia and Alberta. The Refining and Marketing segment transports and sells crude oil, natural gas, and natural gas liquids. Financial Information: Yearly Financial Performance (Good): In 2021, Chevron was able to increase their revenues by 65%, their gross profits by 97%, reported an operating income of $15B (as opposed to a $6B operating loss in 2020), reported a net income of $15.5B (as opposed to a $5.5B loss in 2020), increased their free cash flows by over 12x, and increased their EBITDA by 192% YOY. Yearly Financial Performance (Bad): In 2021, Chevron reported an overall great earnings report. The only negative thing I have to say about it is that this was a “one-off” event and broke a long downward trend in their financials. Chevron’s financial success is largely due to the strong oil prices in the last half of 2021. However, as long as oil remains this strong (even I only for another year or two) there is a good chance that CVX can yield great returns. Q4 2021 Financial Performance (Good): In Q3 2021, Chevron was able to grow their revenues by 91% (from Q4 2020 (YoY)), while limiting their COGS growth rate to 57% which helped them to obtain a higher gross margin. On the topic of gross profit, Chevron was able to amass $5B in gross profit (compared to -$0.66B in Q4 2020). Lastly, they were able to grow their FCF by 206%. Q4 2021 Financial Performance (Bad): Chevron had very little to talk about in terms of bad figures in their earnings. However, in Q4 2021, Chevron experienced a decline of 7.6% in their oil production level. Investment Valuation: Comparable Analyses: (Spreadsheet found at the end of this analysis) By comparing Chevron’s financial ratios to that of their publicly listed competition (listed above in the “competitors” section) I found the following: PEG Ratio: Based off of Chevron’s PEG Ratio in comparison to their competitors, $CVX stock should be valued at $217.25/share, which would imply a share price increase of 56.4%, which is quite high. P/S Ratio: Chevron’s P/S ratio (compared to their counterparts) indicates that the CVX stock should have a fair value of $91.34/share, which would imply their stock is overvalued, and needs to drop by 34% in order to be t fair value. This comparable reflects a very different story than the PEG multiple. EV/EBITDA Ratio: Chevron’s EV/EBITDA ratio indicates that their fair value is $117.30/share, which would translate into a downside risk of 15.5%. Comparable Valuation: Due to the large variability between comparable analyses, I decided to take average the 3 comparable results. By doing this I arrived at a final comparable valuation of $142, which implies an upside potential of 2.2% DCF: (Visualization found at the end of this analysis) By inputting the necessary data into my DCF model, I arrived at a fair valuation of $CVX stock of $129.61/share, which implies an downside risk of 7%. Dividend Discount Model: By imputing Chevrons previous 5 years of dividends, calculating the 5 year dividend growth rate, and comparing this to their WACC. I came up with a fair value of $171which implies that Chevron has an upside potential of 23%. Overall Valuation: In order to provide simplicity, I wanted to come to one final, all-encompassing valuation for the $CVX stock. I did this through taking the average valuation of the Average Comparable, the DCF model, and the dividend discount model. By doing this I arrived at a price target for the $CVX stock of $147.50/share, which implies an upside of 6%. Investment Plan: My plan for an investment in the $CVX stock would go as follows: Enter into a position below the fair value, preferably at/below $140/share. Hold long-term (1-3 years), and re-invest dividends Re-evaluate the position as new data is released (especially their financial reports to see if they continue their growth, or if their growth starts to fall short of expectations).

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$CVX - Chevron: Learn why Chevron may be the best energy pick of 2022

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$CVX - Chevron Corp. is a global leader in the oil & gas space, that operates in both the upstream and downstream segments.

In their upstream segment, Chevron is engaged in the exploration, development, transportation, and production of crude oil and natural gas.

In their downstream segment, Chevron is engaged in the refining of crude oil into petroleum products, marketing both crude oil and refined products, and the transportation of both their crude products and their refined products.

Investment Information:

SEC Filings:

  • Current Report (8-K)
    • On January 28th, 2022, Chevron released their Q4 earnings report
      • $5.1B in Q4 earnings ($15.6B annually), Free Cash Flow of $21.1B in 2021, $11.6B worth of share repurchases or dividends paid out in 2021, and a Full-Year EPS of $8.14.

ESG Initiatives:

In September of 2021, Chevron released their “Energy Transition Spotlight” presentation, which outlines their thoughts on the climate crisis, and how they plan to change their business going forward to be better for the environment. Firstly, Chevron highlighted their plan to reducing emission (“pathway to net zero”) which shows that they are planning to reduce their emissions by investing in renewable, hydrogen, and carbon capturing projects. Chevron has estimated that their plans should puut them on track to reduce their GHG's by 35% by 2028.

Chevron also realizes that there is large growth opportunities in the renewable “low carbon” energy sector, and they have outlined multiple project that can help them to tap into that market. Furthermore, Chevron has highlighted that the renewable diesel and sustainable aviation, and renewable base oils & lubricant sectors can grow by 200% and 1900% by 2025 (44% and 171% annual growth rates) respectively.

These high growth prospects can help Chevron to grow their revenues and potentially avoid the 2.88% decrease rate expected in oil.

Management Team:

This sectioned is designed to give you (the reader) insight into the background of the highest (executive) managers/officers at Asbury. The following people are listed as the highest-ranking members of the Chevron Management Team.

Michael Wirth (Chairman of the Board & Chief Executive Officer): Mr. Wirth, 61, is chairman of the board and chief executive officer of Chevron Corporation. He was elected to these positions by Chevron's board of directors in September 2017 and has assumed the role since February 2018.

Prior to his current role, Wirth served as vice chairman of the board in 2017 and executive VP of Midstream & Development for Chevron from 2016 - 2018. In that role, he was responsible for supply and trading, shipping, pipeline and power operating units, as well as corporate strategy; business development; and policy, government and public affairs.

Wirth was executive VP of Downstream & Chemicals from 2006 to 2015. Prior to that, he served as president of Global Supply and Trading from 2003 to 2006.

Pierre Breber (VP & Chief Financial Officer): Mr. Breber, 57, is Chevron's VP and CFO, a position he assumed in 2019. He is responsible for controller, tax, treasury, audit and investor relations activities worldwide.

Previously Breber served as executive vice president of Downstream and Chemicals since 2016. Additionally, Breber was executive VP of Gas and Midstream. With more than 25 years of service, Breber has served in a number of leadership positions with increasing responsibilities.

Eimear Bonner (VP & Chief Technology Officer): Ms. Bonner, 47, has been serving as the VP and CTO since 2021. She also serves as president of the Chevron Technical Center, which provides expertise to drive the application of technology, initiatives to transform Chevron's digital future and innovative breakthrough technology to support the future of energy.

Previously Bonner served as general director of Chevron's largest joint venture, Tengizchevroil (TCO), in Kazakhstan since 2018. Prior to that, Bonner led the TCO organization and was responsible for ensuring strong business performance, advancing a major expansion project, and managing relationships with stakeholders in the Kazakhstan government.

Bonner's previous leadership roles include deputy managing director of Chevron's Eurasia Business Unit, an asset manager in Chevron Thailand, and general manager of Corporate Strategy.

As you can see, Chevron's highest level management officers all have rich histories at the company and in their respective fields. Furthermore, they have all spent long periods of time advancing into higher roles within Chevron, which should imply that they all have extensive knowledge of the company from the ground up.

Competitors:

In order to undergo the comparable analysis, we need to get an idea of their closest competitors. These competitors must operate in the same space, operate in similar geographies, be of similar market cap, and have valid financial ratios. Using this criterion, I came up with the following.

  • $XOM - Exxon Mobil Corp: Exxon explores for and produces crude oil and natural gas in the internationally. It operates through Upstream, Downstream, and Chemical segments. The company is also involved in the manufacture, trade, transport, and sale of crude oil, natural gas, and petroleum products; and manufactures and sells petrochemicals, including olefins, polyolefins, aromatics, and various other petrochemicals. As of December 31, 2020, it had approximately 22,239 net operated wells with proved reserves.
  • $SU -Suncor Inc: Suncor focuses on developing petroleum resource basins in Canada's Athabasca oil sands. Suncor explores, acquires, develops, produces, transports, refines, and markets crude oil internationally. Furthermore, Suncor markets petroleum and petrochemical products under the Petro-Canada (in Canada). The Oil Sands segment of Suncor business recovers bitumen from mining operations, and upgrades it into refinery feedstock and diesel fuel, for direct sale to market. The Exploration and Production segment is involved in offshore operations in Canada and internationally. The Refining and Marketing segment refines crude oil and intermediate feedstock into various petroleum and petrochemical products; and markets refined petroleum products to retail, commercial, and industrial customers through its other retail sellers.
  • $BP - BP PLC: BP engages in the energy business worldwide. BP produces and trades natural gas; offers biofuels; operates onshore and offshore wind power; and provides de-carbonization solutions and services. BP is also involved in the convenience and mobility business, which manages the sale of fuels to wholesale and retail customers, as well as operation of electric vehicle charging facilities. In addition, BP produces and refines oil and gas; and invests in upstream, downstream, and alternative energy companies.
  • $CVE -Cenovus Energy Inc: Cenovus develops, produces, and markets crude oil, natural gas liquids, and natural gas internationally. Cenovus operates through the Oil Sands, Conventional, and Refining and Marketing segments. The Oil Sands segment develops and produces bitumen in northeast Alberta. The Conventional segment holds assets in the operating areas of British Columbia and Alberta. The Refining and Marketing segment transports and sells crude oil, natural gas, and natural gas liquids.

Financial Information:

  • Yearly Financial Performance (Good): In 2021, Chevron was able to increase their revenues by 65%, their gross profits by 97%, reported an operating income of $15B (as opposed to a $6B operating loss in 2020), reported a net income of $15.5B (as opposed to a $5.5B loss in 2020), increased their free cash flows by over 12x, and increased their EBITDA by 192% YOY.
  • Yearly Financial Performance (Bad): In 2021, Chevron reported an overall great earnings report. The only negative thing I have to say about it is that this was a “one-off” event and broke a long downward trend in their financials. Chevron's financial success is largely due to the strong oil prices in the last half of 2021. However, as long as oil remains this strong (even I only for another year or two) there is a good chance that CVX can yield great returns.
  • Q4 2021 Financial Performance (Good): In Q3 2021, Chevron was able to grow their revenues by 91% (from Q4 2020 (YoY)), while limiting their COGS growth rate to 57% which helped them to obtain a higher gross margin. On the topic of gross profit, Chevron was able to amass $5B in gross profit (compared to -$0.66B in Q4 2020). Lastly, they were able to grow their FCF by 206%.
  • Q4 2021 Financial Performance (Bad): Chevron had very little to talk about in terms of bad figures in their earnings. However, in Q4 2021, Chevron experienced a decline of 7.6% in their oil production level.

Investment Valuation:

Comparable Analyses: (Spreadsheet found at the end of this analysis)

By comparing Chevron's financial ratios to that of their publicly listed competition (listed above in the “competitors” section) I found the following:

PEG Ratio:

Based off of Chevron's PEG Ratio in comparison to their competitors, $CVX stock should be valued at $217.25/share, which would imply a share price increase of 56.4%, which is quite high.

P/S Ratio:

Chevron's P/S ratio (compared to their counterparts) indicates that the CVX stock should have a fair value of $91.34/share, which would imply their stock is overvalued, and needs to drop by 34% in order to be t fair value. This comparable reflects a very different story than the PEG multiple.

EV/EBITDA Ratio:

Chevron's EV/EBITDA ratio indicates that their fair value is $117.30/share, which would translate into a downside risk of 15.5%.

Comparable Valuation:

Due to the large variability between comparable analyses, I decided to take average the 3 comparable results. By doing this I arrived at a final comparable valuation of $142, which implies an upside potential of 2.2%

DCF: (Visualization found at the end of this analysis)

By inputting the necessary data into my DCF model, I arrived at a fair valuation of $CVX stock of $129.61/share, which implies an downside risk of 7%.

Dividend Discount Model:

By imputing Chevrons previous 5 years of dividends, calculating the 5 year dividend growth rate, and comparing this to their WACC. I came up with a fair value of $171which implies that Chevron has an upside potential of 23%.

Overall Valuation:

In order to provide simplicity, I wanted to come to one final, all-encompassing valuation for the $CVX stock. I did this through taking the average valuation of the Average Comparable, the DCF model, and the dividend discount model. By doing this I arrived at a price target for the $CVX stock of $147.50/share, which implies an upside of 6%.

Investment Plan:

My plan for an investment in the $CVX stock would go as follows:

  • Enter into a position below the fair value, preferably at/below $140/share.
  • Hold long-term (1-3 years), and re-invest dividends
  • Re-evaluate the position as new data is released (especially their financial reports to see if they continue their growth, or if their growth starts to fall short of expectations).
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147.50
Target Price
9/ 10
Confidence
6-12 Months
Timeframe
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Financials
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Management
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