Is Chevron a Buy at Current Prices?

With shares of Chevron (NYSE:CVX) trading around $121, 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 has obtained a tender to explore for shale gas in western Lithuania, according to the government via its Twitter feed on Tuesday. The Baltic country is attempting to free itself from dependence on gas from Russia. Chevron was the sole bidder to explore for unconventional hydrocarbons in the 1,800-square-kilometer Silute-Taurage prospect, which Lithuanian experts calculate might hold as much as 80 billion cubic meters of technically recoverable shale gas.

T = Technicals on the Stock Chart Are Mixed

Chevron stock has been trending higher over the last several quarters. The stock is currently bouncing off an upward sloping trendline, so it may continue 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 between its rising key averages which signal neutral price action in the near-term.

CVX

Source: Thinkorswim

Taking a look at the implied volatility 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

18.75%

80%

79%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October Options

Flat

Average

As of Thursday, 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 significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

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 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

-1.17%

1.29%

1.17%

-2.77%

Chevron has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Chevron’s recent earnings announcements.

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), and Exxon Mobil (NYSE:XOM) — and sector?

Chevron

BP

Royal Dutch Shell

Exxon Mobil

Sector

Year-to-Date Return

12.30%

-0.38%

-6.47%

1.46%

2.57%

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. The company recently won a bid to explore for shale gas in western Lithuania. The stock is currently bouncing off an upward sloping trendline and may continue to do so. Over the last four quarters, earnings and revenues have been mixed, which has produced mixed feelings among investors in the company. Relative to its peers and sector, Chevron has been a year-to-date performance leader. Look for Chevron to OUTPERFORM.

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