Where Will Chevron Go Post Earnings?

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.

Chevron Corporation today reported earnings of $4.5 billion ($2.36 per share – diluted) for the first quarter 2014, compared with $6.2 billion ($3.18 per share – diluted) in the 2013 first quarter. Sales and other operating revenues in the first quarter 2014 were $51 billion, compared to $54 billion in the year-ago period. “Our first quarter earnings were down from a year ago,” said Chairman and CEO John Watson, “primarily due to lower prices and volumes for crude oil. Crude prices were tempered by global economic factors, while our current year production volumes were affected by weather-related, unplanned downtime, particularly in Kazakhstan.”

“We continue to advance our key development projects,” Watson added, “and we are anticipating production growth in 2015 and beyond as a result of these investments. Significant progress has been made on the construction of our Gorgon and Wheatstone projects in Australia. Our Jack/St. Malo and Big Foot projects in the Gulf of Mexico are also progressing, with first production planned for late 2014 and mid-2015, respectively. Our financial strength continues to allow us to fund these important growth projects which are expected to support a 20 percent increase in production by 2017, and to growshareholder distributions.”

T = Technicals on the Stock Chart are Mixed

Chevron stock has struggled to make significant progress over the last couple of years. The stock is currently pulling back and may need time to stabilize before heading higher. 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

16.56%

0%

0%

What does this mean? This means that investors or traders are buying a 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 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

-0.35%*

-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 been pleased with Chevron’s recent earnings announcements.

* As of this writing

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

-0.17%

4.55%

11.66%

1.10%

5.28%

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 reported quarter one earnings on Friday. The stock has struggled to make significant progress over the last couple of years and is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has produced mixed 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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