Chevron Corporation (NYSE:CVX) will release second-quarter earnings before the market opens on Friday, July 29. Chevron’s stock has dropped dramatically since its 52-week high in June. Since then, the stock has plunged 20% in tandem with crude oil, which is down roughly 10% for the month at the time of writing.
Chevron reports Q2 2022 earnings on July 29, 2022
Chevron has missed earnings per share projections twice in the recent year (last two quarters). The profits forecast chart below is for the fiscal year ending June 30, 2022. This is Chevron’s fiscal second quarter of 2022, which will be disclosed before the market opens on July 29, 2022. The consensus EPS forecast is $5.03, representing a 70% increase over the $3.36 EPS reported last year. On $57.69 billion in revenue, the low expectation is $4.43 EPS, and the high estimate is $5.52 EPS.
Nine upward and five unfavourable revenue and EPS revisions were among the 14 analysts monitoring the stock. This openly underlines the puzzling dilemma that Chevron’s current earnings situation poses. There are numerous variables to consider about the company’s strategy and the increasingly dynamic energy sector environment. Nonetheless, there is a slew of positives moving into earnings right now. Let’s look deeper at the previous quarter’s report and guidance.
Previous quarter – Q1 2022 earnings results
Chevron missed earnings per share by $0.09 cents, coming in at $3.36. Nonetheless, Chevron (NYSE:CVX) of California outperformed by $1.62 billion in revenue, ending at $90.50 billion. Most significantly, the cash flow was consistent. Chevron (NYSE:CVX) announced a third consecutive quarter of free cash flow in excess of $6 billion, allowing the San Ramon energy behemoth to repay $4 billion to stockholders while also paying down debt.
Chevron (NYSE:CVX) predicts lower output in the second quarter owing to planned turnarounds at Wheatstone and Angola LNG, impacts from the CPC pipeline, and the expiration of the Area 1 concession in Thailand. Two of the three single port moorings at CPC are now operational, and TCO has resumed full operations. The projected downtime related to the April repairs is less than 15% of the company’s second-quarter turnaround and downtime expectations. HSBC recently upgraded Chevron (NYSE:CVX) to a BUY based on many recent developments.
Chevron raised to Buy at HSBC as sector correction offers an entry point
HSBC recently raised Chevron (NYSE:CVX) shares to Buy from Hold, with a $167 price target, claiming that the recent slump in global integrated oil stocks was exaggerated, making the sector look more appealing. According to HSBC analyst Gordon Grey, Chevron (NYSE:CVX) has been one of the worst-performing companies in the integrated oil group in the last month, bringing the stock’s valuation back to levels that warrant an upgrade, given that the price target indicates a 20% upside.
Current market environment backdrop
Due to low investment levels during the epidemic, a tight supply/demand environment has been created. The low supply and a significant increase in demand as the pandemic waned contributed significantly to the quick rise in oil, natural gas, and refined product prices. Furthermore, the events in Ukraine have added uncertainty to an already tense supply outlook. Brent crude jumped by around $22 per barrel, or 27%, compared to the fourth quarter of 2021. Natural gas prices are currently substantially above 10-year historical norms, owing to tight global market circumstances and European supply concerns.
Furthermore, restricted supply to manufacturers has pushed refining margins to the extremes. Nonetheless, chemical margins in Asia have shrunk dramatically, with product prices trailing steep rises in fees and energy costs. The following section describes Chevron’s current operational approach to this dynamic environment in the future.
Chevron’s fundamental metrics
Based on existing fundamental data, Chevron’s stock seems to be undervalued.
PEG ratio less than 1
The PEG ratio is a widely utilized indication of a stock’s potential value. Many analysts prefer it over the price/earnings ratio since it considers growth. A lower PEG ratio, like a lower P/E ratio, indicates that the stock may be significantly undervalued. For PEG ratios, many bankers select one as the cut-off point. Chevron’s PEG ratio of 0.57 is exceptional and among the lowest in the business.
Fortress balance sheet
Chevron’s robust balance sheet and the oil giant’s commitment to return capital to shareholders make it one of the greatest buys in the oil patch today. Chevron’s (NYSE:CVX) previous investments in huge long-cycle oil and gas projects and the oil giant’s short-cycle US shale assets allow me to sleep soundly at night. The company is well-positioned to raise the dividend and repurchase shares based on current conditions. The company has been designated as a dividend aristocrat.
Chevron’s dividend aristocrat status
The company’s dedication to returning cash to shareholders through dividend increases and share buybacks is widely documented. Chevron’s top aim has always been to increase the dividend. Chevron is a legitimate dividend aristocrat. Chevron (NYSE:CVX) has not missed a dividend payment in 34 years and has increased the distribution for the last six. Let us now summarize this thesis.
The Bottom Line
The basic line is that Chevron has the financial resources to ensure that the dividend is maintained and, most likely, enhanced yearly. Chevron (NYSE:CVX) will pay the dividend and buy back shares come hell or high water. However, with the current dividend yield of 3.86%, I would layer into a new stake over time to lessen risk.
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