Is CVX a Buy, Sell or Hold?

Energy giant Chevron Corporation (NYSE:CVX) has long been a pure-play oil and gas giant. While the company is still largely dependent on its conventional energy business, there have been some efforts on its part to diversify into the lower-carbon energy business.

On the energy front, the transition to renewables away from conventional energy sources has been somewhat sluggish, even though there has been a push from governments around the world to incorporate more clean energy.

The new Trump administration, on the other hand, is going down the old-school route and the President has already passed multiple executive orders that impact the energy business. One of them was the U.S. leaving the Paris Climate Agreement, which signals a return to embrace fossil fuel production.

For the current year, the U.S. Energy Information Administration expects OPEC+ production cuts to reduce global oil inventories and keep crude oil prices elevated, although they do expect some downward pressure on prices in the second half of the year.

The takeaway from EIA’s prediction is that it expects global production of liquid fuels to increase by 1.9 million barrels per day (b/d) in 2025 due to an increase in supply outside of the OPEC+ group and relaxation of some OPEC+ cuts.

Returning to Chevron, the company’s stock has not exactly been skyrocketing. Over the past five years, the share price has gained close to 40%, which falls short of The Energy Select Sector SPDR Fund’s (NYSEARCA:XLE) 60% plus gain over the same period.

So what does the future hold for CVX shareholders? It it best to hold or to sell and look for other opportunities? Or has the underperformance led to a buying opportunity?

Chevron’s Problems Began In 2023

From 2021 onwards Chevron’s top line started to show signs of a resurgence from a prior slump. Revenues for the year jumped by 72%, which was taken as a sign of significant recovery. The following year, top line growth moderated but remained an impressive 52%. The problems really began in 2023, when sales fell by 18% year-over-year. Earnings have largely fallen in lockstep with the revenue figures reported.

Needless to say, as a conventional energy exploration giant, the primary channel for revenue generation is its upstream business. And in that area, there was a huge recovery in earnings for the year 2021 when the company managed to turn its losses from the prior year into full blown profits. By 2022, earnings approximately doubled before tumbling by 40% in the next year. 

Last year, the company managed to get somewhat back on a better track as a result of its U.S. net oil-equivalent production that set annual records. Chevron’s worldwide production increased by 7%, primarily due to nearly 18% growth in the Permian Basin and a full year of legacy PDC Energy, a company that was acquired by Chevron in 2023 production.

The company’s top line posted a small but meaningful growth, reaching $202.79 billion, which came in higher than what analysts on Wall Street were expecting. The upstream business turned up an earnings of $18.60 billion, which was 7% higher than a year ago but overall earnings fell by 17% to $17.66 billion due to lower margins on its refined products.

Last year, Chevron also closed some of its asset sales in Canada, Congo, and Alaska, while Hess Corporation incorporation was well on track. Based on such changes, the company projected a target of $2-3 billion of structural cost reductions by the end of 2026.

What Is Chevron Doing Currently?

In recent times, conventional energy giants have tried a lot to diversify into other energy sources, like lower-carbon energy sources. In that regard, Chevron’s venture capital fund launched its third fund to invest in renewable energy technologies, committing a whopping $500 million.

Apart from the environmental concerns that follow fuel giants, this could also be seen as an effort to diversify. There are novel opportunities left in renewables, which might be the way the future fuels itself.

As is evident from its declining earnings for two years in a row now, Chevron is clearly looking to cut costs. The company has planned a 15-20% workforce reduction to achieve some of these aims, and the layoffs will be completed by the end of next year.  

So what’s on the best course of action for existing shareholders and those considering an entry?

Is CVX a Buy, Sell or Hold?

Chevron is a Buy with upside to $176 per share according to the consensus price target forecast of 23 analysts who see 7.2% upside now.

When we run a discounted cash flow forecast analysis, the numbers aren’t quite so optimistic with fair value coming in around $168 per share, so the stock remains a Buy but is teetering on the verge of a Hold.

Among analysts, the range of estimates is between $156 per share on the low-end and $203 per share on the high-end.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.