A trailblazer in the global energy industry, Chevron Corporation (NYSE:CVX) has matched, stride by stride, the Dow Jones Industrial Average so far in 2013, under-performing the blue chip average by only 1.66%.
Chevron is a major player in the global energy industry. The company operates its upstream and downstream segments, and possesses a dominant global presence. Based on market capitalization, Chevron is valued at a monumental $240.61 billion. Chevron Corporation (NYSE:CVX)’s fundamentally strong business model results in the company possessing a TTM profit margin of 10.88%.
With the stock trading within $3 of all time highs, should investors bet on this diversified energy giant, or should they look elsewhere for black gold?
Strengths:
Institutional Vote of Confidence: 61.31% of shares outstanding are held by institutional investors, displaying the confidence some of largest investors in the world have in the company and its future.
Historic Revenue Growth: In 2003, Chevron reported revenue of $120.03 billion; in 2012, the company announced revenue of $241.90 billion, representing year over year annual growth of 8.10%, a trend which is expected to sustain into the future with projections placing 2016 revenue at $286.76 billion. This growth has been a result of aggressive investment by the company in new production facilities and strength in energy prices.
Basement Valuation: At the moment, Chevron Corporation (NYSE:CVX) possesses a price to earnings ratio of 8.64 and a price to sales ratio of 0.94, both of which represent a company trading with a basement valuation.
Relatively Low Volatility: Presently, the company holds a beta ratio of 0.77, representing a company trading with considerably less volatility than the overall market.
Strong Cash Flow: In 2011, Chevron generated $39.80 billion in cash flow, giving the company an enhanced level of financial strength.
Diversified & Established Nature: The company employs 61,000, possesses a global presence, and is valued at a fifth of $1 trillion; the company’s diversified and established nature provides investors with a greater level of security and predictability.
Net Cash Position: Chevron Corporation (NYSE:CVX)’s $14 billion of debt is outweighed by its $22 billion of cash and cash equivalents, resulting in a net cash position of $7.1 billion, or roughly $3.60 per share, a financial strength of the company.
Margin Expansion: Over the past decade, the company’s TTM profit margin has expanded from the 5% level to the current 10.88% figure, an extremely advantageous trend for the company.
Weaknesses:
Expenditures Outgrowing Revenue: From 2007 to 2011, capital expenditures have grown 45.15%, while revenues have only grown 43.69%; expenditures outgrowing revenue will lead to margin compression if it persists.
Opportunities:
Dividend Growth: Since implementing their dividend program in 1912, Chevron has consistently raised their dividend payouts and is highly anticipated to continue to do so into the future.
Upstream Segment: The company’s upstream segment, also known as exploration and production, has grown from generating $59.65 billion in 2007 to generating $93.18 billion in 2011, fueled by aggressive investment by the company in major capital projects; further growth in this segment is projected and will fuel overall company growth.
Strength in Energy Prices: Chevron Corporation (NYSE:CVX)’s downstream segment experiences improving margins when energy prices exhibit strength; any strength in energy prices could provide opportunity to the company.
Major Capital Projects: The company’s exploration activities have added 10.5 billion barrels of risked oil-equivalent sources since 2002, and with several major capital projects planned for the upcoming years, each with an expected maximum net daily production of 25,000 barrels of oil-equivalent, the opportunity is presented to fuel growth.
Results for R&D Spending: In 2013, Chevron is anticipated to pour $1.72 billion into research and development; any innovative technologies that results from this investment could lead to increased production and a greater exploration drilling success rate.
