Where Will Chevron Go Next?

With shares of Chevron (NYSE:CVX) trading around $124, 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.

On Friday, Chevron reported somewhat underwhelming second quarter earnings. Sales and operating revenues fell 8.3 percent on the year to $55 billion, missing the average analyst estimate of $56 billion. Earnings declined 27.3 percent on the year to $2.77 per share, missing the average analyst estimate of $2.96 per share.

T = Technicals on the Stock Chart are Strong

Chevron stock has seen a consistent rise over the last several years. The stock is now trading slightly below all-time high prices, and it may need to spend some time there before moving higher. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are 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 slightly above its rising key averages, which signals 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

17.03%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is 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 what that means for Chevron’s stock.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, reactions to the last four quarterly earnings announcements can 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-27.30%

-2.57%

43.94%

-31.38%

Revenue Growth (Y-O-Y)

-8.30%

1.03%

0.95%

-9.91%

Earnings Reaction

-1.18%*

1.29%

1.17%

-2.77%

Chevron has seen decreasing earnings and mixed revenue figures over the last four quarters. From these numbers, it seems the markets have been feeling mixed about Chevron’s recent earnings announcements.

* As of this writing

P = Excellent 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 the overall sector?

Chevron

BP

Royal Dutch Shell

Exxon Mobil

Sector

Year-to-Date Return

15.03%

0.55%

-6.76%

5.89%

4.91%

Chevron has been a relative performance leader, year-to-date.

Conclusion

Chevron is an oil and gas bellwether that provides essential energy products and services to consumers and companies worldwide. A recent earnings report has left investors in the company feeling a bit sour. The stock is now trading slightly below all-time high prices, where it may need to spend some time in order to digest the firm’s recent earnings report. Over the last four quarters, the markets have had mixed feelings about the company, as earnings have been decreasing, while revenue figures have been mixed. Relative to its peers and sector, Chevron has been a year-to-date performance leader. Look for Chevron to bounce back and OUTPERFORM.

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