Can Chevron See a Comeback?

With shares of Chevron (NYSE:CVX) trading around $112, 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 Friday reported earnings of $4.9 billion ($2.57 per share — diluted) for the fourth-quarter of 2013, compared with $7.2 billion ($3.70 per share — diluted) in the 2012 fourth-quarter. Full-year 2013 earnings were $21.4 billion ($11.09 per share — diluted), down 18 percent from $26.2 billion ($13.32 per share — diluted) in 2012. Sales and other operating revenues in the fourth-quarter 2013 were $54 billion, compared to $56 billion in the year-ago period. “Global crude oil prices and refining margins were generally lower in 2013 than 2012,” said Chair and CEO John Watson. “These conditions, as well as lower gains on asset sales and higher expenses, resulted in lower earnings. We continue to have an advantaged portfolio, and we have maintained our industry-leading position in upstream earnings per barrel for the past four years.

“Our strong financial position and healthy cash generation in 2013 have allowed us to fund a substantial investment program, add several new resource opportunities and, at the same time, raise shareholder distributions. Major capital projects currently under construction are expected to deliver significant production growth and shareholder value in the years ahead. We also raised the dividend on our common shares for the 26th consecutive year and continued our share repurchase program, both of which underscore our commitment to providing strong shareholder returns.”

T = Technicals on the Stock Chart Are Weak

Chevron stock has been trading sideways in recent quarters. The stock is currently trading near lows for the year and may need time to consolidate. 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

18.62%

73%

70%

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

Put IV Skew

Call IV Skew

February Options

Steep

Average

March 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 very significant 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

-3.10%*

-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.

* 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

-9.69%

-3.00%

-2.74%

-8.18%

-4.90%

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 earnings that were lower in 2013 than 2012. The stock has been trading sideways in recent quarters and is now trading near lows for the year. 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.

More From Wall St. Cheat Sheet:

More from The Cheat Sheet