Can Chevron Move Higher?

With shares of Chevron (NYSE:CVX) trading around $123, is CVX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Chevron engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments: upstream and downstream. The upstream segment is involved in the exploration, development, and production of crude oil and natural gas, while the downstream segment engages in refining crude oil into petroleum products. Through its segments, Chevron is able to provide a range of energy products and services to a wide variety of companies around the world. As economies and businesses expand, Chevron is poised to provide the energy products and services required to fuel growth around the world.

Chevron today provided an overview of the company’s 2013 operational and social performance and future growth plans at its 2014 Annual Meeting of Stockholders in Midland, Texas. “Chevron’s 2013 results demonstrate that we remain well positioned to grow profitably and continue to deliver superior stockholder value,” said John Watson, chairman of the board and chief executive officer. “We continue to advance key development projects, which underpin our planned growth strategy and capacity to deliver affordable energy to world markets, a cornerstone of economic prosperity.”

During the meeting, Watson discussed Chevron’s 2013 financial and operational performance, highlighting earnings of $21.4 billion and return on capital employed of 13.5 percent. Watson also discussed the partnerships Chevron has formed to address health, education and economic development in the communities where the company operates. Over the past eight years, Chevron has made nearly $1.5 billion in social investments to local communities. George Kirkland, Chevron vice chair, said the company is on track to grow production to 3.1 million barrels of oil-equivalent per day by 2017, up 20 percent from 2013, with more growth expected through the end of the decade. To reach this goal, the company has more than 70 projects, each with a Chevron share of more than $250 million, scheduled to start-up by the end of this decade.

T = Technicals on the Stock Chart Are Strong

Chevron stock has been moving higher over the last couple of quarters. However, the stock is currently pulling back and may need time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Chevron is trading above its rising key averages which signal neutral to bullish price action in the near-term.

CVX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Chevron options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Chevron options

13.52%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Chevron’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Chevron look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-25.79%

-30.54%

-4.46%

-27.30%

Revenue Growth (Y-O-Y)

-6.25%

-4.10%

0.79%

-8.30%

Earnings Reaction

-0.17%

-4.13%

-1.62%

-1.17%

Chevron has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Chevron’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Chevron stock done relative to its peers, BP (NYSE:BP), Royal Dutch Shell (NYSE:RDSA), Exxon Mobil (NYSE:XOM), and sector?

Chevron

BP

Royal Dutch Shell

Exxon Mobil

Sector

Year-to-Date Return

-1.44%

4.34%

9.72%

0.45%

4.26%

Chevron has been a poor relative performer, year-to-date.

Conclusion

Chevron is an oil and gas bellwether that provides essential energy products and services to consumers and companies worldwide. The company today provided an overview of the company’s 2013 operational and social performance and future growth plans at its 2014 Annual Meeting of Stockholders in Midland, Texas. The stock has been moving higher over the last couple of quarters, but is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has produced conflicting feelings among investors. Relative to its peers and sector, Chevron has been a poor year-to-date performer. WAIT AND SEE what Chevron does this coming quarter.

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