Will Chevron Outperform the Other Supermajors?

With shares of Chevron Corporation (NYSE:CVX) trading around $116.50, is the company an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalysts for the Stock’s Movement are Positive

Chevron reported fourth-quarter earnings of $7.2 billion, or $3.70 per diluted share, a 43.4 percent gain on the year-ago period and ahead of expectations of $3.04 per share. Sales and operating revenue for the quarter fell 3.4 percent to $56 billion, mainly due to lower crude oil volumes.

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For the quarter, earnings from upstream operations increased 19.5 percent to $6.8 billion. Downstream operations moved from a loss of $61 million in the fourth quarter of 2011 to gains of $925 million in the fourth quarter of 2012.

4Q 2012 4Q 2011 Full-year 2012 Full-year 2011
Diluted EPS ($) 3.70 2.58 13.32 13.44
Upstream Earnings ($) in millions 6,858 5,737 23,788 24,786
Downstream Earnings ($) in millions 925 (61) 4,229 3,591

“We’ve now led the industry in earnings per barrel for over three years,” said John Watson, chairman and CEO. “In the downstream business, we completed a multiyear plan to streamline the asset portfolio,” he added.

Shares closed the regular session up 1.17 percent on the Friday the report was released.

E = Equity-to-Debt Ratio is Close to Zero

While Chevron’s debt-to-equity ratio of 0.09 looks pretty attractive, it’s not best in class. Exxon Mobil (NYSE:XOM) edges it out at just 0.07, but Chevron does come in ahead of BP (NYSE:BP) at a relatively high 0.42.

It’s also important to look at total debt and total cash on hand, which for Chevron is $12.34 billion and $21.58 billion, respectively. Exxon Mobil has total debt of $12.42 billion, and a relatively small war chest of $13.06 billion. BP comes to the table with $41.32 billion in debt and $16.36 billion in cash as of the third quarter.

T = Technicals on the Stock Chart

As of February 1, Chevron’s stock price was 2.69 percent above its 20-day simple moving average, or SMA; 6.36 percent above its 50-day SMA; and 8.70 percent above its 200-day SMA.

Since the beginning of 2013, the stock price has been in a fairly pronounced upward trend, rising 7.73 percent this year to date and rising 16.78 percent year over year.

As a benchmark, the S&P 500 (in orange) has risen 6.10 percent year to date, and has risen 14.28 percent year over year.

T = Trends Support the Industry in which the Company Operatesoil-on-water

The increasing role of natural gas in the energy mix is changing the types of acquisitions supermajors are making. Hydraulic fracturing and horizontal drilling have made accessing shale oil and gas reserves much more financially feasible, and as a result production in North America is ramping up. The IEA predicts that North America will become the world leader in oil production by 2020. Exporting U.S. oil is slated to look very attractive in the coming future.

By successfully drilling in Australia and Indonesia and buying land in Poland and Bulgaria, Chevron has strengthened its global position. Oil and gas companies have been dubious about inland European production, but advancing technology makes shale deposits there easier to access. The vast majority of demand for oil and gas heading through 2035 is expected to come from China, India, and other rapidly industrializing nations. OECD nations are expected to offset increased energy demands with higher efficiencies and renewable energy. Strong production facilities in Australia and Indonesia can help Chevron get ahead of U.S. exports.

Conclusion

Chevron is trading at a price-to-earnings ratio of 9.55, which compares to Exxon Mobil at 9.50 and BP at 8.13, making it slightly more expensive than its major competitors. The company has a dividend of 3.09 percent.

Analysts favor Chevron with a majority “Buy” rating and a mean price target about 6 percent higher than its February 1 closing price. Of all the supermajors, Chevron feels particularly well placed to capitalize on the rapidly-changing energy landscape. Because of this and the metrics mentioned above, Chevron looks like a long-term OUTPERFORM.

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