Is Chevron Poised to Head Higher?

With shares of Chevron (NYSE:CVX) trading around $114, 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.

After a Chevron hydraulic fracturing well exploded in rural Dunkard Township, Pennsylvania, last Tuesday, and burned for four days straight, the energy company knew just the way to soothe nearby residents: free pizza. The flames that billowed out of the Marcellus Shale natural gas well were so hot they caused a nearby propane truck to explode, and first responders were forced to retreat to avoid injury. The fire burned for four days, and Chevron currently has tanks of water standing by in case it reignites. Of the twenty contractors on the well site, one is still missing, and is presumed dead.

Seconds before the explosion, John Kuis, 57, who lives less than a half-mile away in Dilliner, said he felt rumbling. “Then the house just sort of shook and there was a big loud bang,” he told the Pittsburgh Post-Gazette. “It scared him, he thought he actually had an explosion in his home,” William Kuis, John’s cousin, told Newsweek. But at least the residents of nearby Greene County will be enjoying a large pizza pie and two liters of soda on Chevron’s tab.

T = Technicals on the Stock Chart Are Mixed

Chevron stock has struggled to make significant progress over the last couple of years. However, the stock is currently moving higher and looks poised to continue. 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 below its rising key averages which signal neutral to bearish 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

18.03%

23%

20%

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

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

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

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-30.54%

-4.46%

-27.30%

-2.57%

Revenue Growth (Y-O-Y)

-4.10%

0.79%

-8.30%

1.03%

Earnings Reaction

-4.13%

-1.62%

-1.17%

1.29%

Chevron has seen decreasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been optimistic 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

-8.13%

1.89%

2.02%

-6.46%

-1.67%

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. After the company hydraulic fracturing well exploded in rural Dunkard Township, Pennsylvania, last Tuesday, and burned for four days straight, the energy company decided to soothe the nearby residents with free pizza. The stock has struggled to make significant progress over the last couple of years, but is currently moving higher. Over the last four quarters, earnings have been decreasing while revenues have been mixed, which has left investors optimistic about recent earnings announcements. Relative to its peers and sector, Chevron has been a poor year-to-date performer. WAIT AND SEE what Chevron does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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