Institutional Investors' Take on Chevron's Fiscal 3Q15 Earnings
(Continued from Prior Part)
Chevron’s PE valuation
In the last part of this series, we saw that hedge funds with significant exposure to Chevron (CVX) primarily increased their stakes or maintained their positions in fiscal 2Q15. Now, we’ll discuss the valuation metrics of Chevron and its peer group.
Energy companies like Chevron, ExxonMobil (XOM), ConocoPhillips (COP), BP (BP), Valero Energy (VLO), Marathon Petroleum (MPC), and Royal Dutch Shell (RDS) are Oil & Gas Exploration & Production companies. Oil & Gas Exploration & Production is linked to the state of the domestic and global economies. Energy companies’ profitability tends to be influenced or depend on crude oil production and demand. Crude oil and gas are the major cost components. Their revenue and earnings tend to fluctuate depending on these two variables.
Chevron is the second-largest energy giant in the US. However, with a market capitalization of $166.9 billion, it ranks behind ExxonMobil. It has a market cap of $338.6 billion. BP is third with a market cap of $107.0 billion.
From a total return perspective, Chevron underperformed the S&P 500 Energy Index and its peer group. Chevron lost ~20% YTD (year-to-date) compared to XLE. It lost ~15% compared to its peer group.
Is the overvalued performance justified?
As you can see in the above graph, Chevron trades at a PE (price-to-earnings) ratio of 13.70x. That’s at a considerable discount with its peer average and the S&P 500 multiples. Looking at other valuation parameters, Chevron has been delivering a trailing 12-month dividend yield of 4.7%. That’s better than the biggest energy player, ExxonMobil. It has been providing 3.5% for the same period.
Other factors that will likely improve include the FCF (free cash flow), Chevron’s collective efforts to improve future earnings, and cash flows in the future. Chevron revived its cost structure by renegotiation across the company according to the fiscal 2Q15 filing. The whole energy sector has been under pressure since fiscal 1Q15 due to lowering crude oil prices. There isn’t any sign of a recovery in the short term.
Next, we’ll discuss Wall Street analysts’ recommendations for Chevron.
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