Can Chevron See a Turnaround?

With shares of Chevron (NYSE:CVX) trading around $118, 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 reported earnings of $5.0 billion ($2.57 per share – diluted) for the third quarter 2013, compared with $5.3 billion ($2.69 per share – diluted) in the 2012 third quarter. Sales and other operating revenues in the third quarter 2013 were $57 billion, compared to $56 billion in the year-ago period. “Our third quarter earnings were down from a year ago,” said Chairman and CEO John Watson, “primarily reflecting lower margins for refined products in the current period.”

T = Technicals on the Stock Chart are Mixed

Chevron stock has been moving higher in the past several years. The stock has been trading sideways this year, as it has been digesting gains from a bullish run. 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 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

18.23%

16%

14%

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

November Options

Steep

Average

December 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 small 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-4.46%

-27.30%

-2.57%

43.94%

Revenue Growth (Y-O-Y)

0.79%

-8.30%

1.03%

0.95%

Earnings Reaction

-1.50%*

-1.17%

1.29%

1.17%

Chevron has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings with 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 sector?

Chevron

BP

Royal Dutch Shell

Exxon Mobil

Sector

Year-to-Date Return

8.43%

10.95%

-3.16%

2.43%

5.66%

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. Chevron reported earnings that were down from a year ago leaving investors not too happy about the recent quarter. The stock has been moving higher but is now consolidating as it digests recent gains and news. Over the last four quarters, earnings have been decreasing while revenues have been increasing, which has produced conflicting feelings about recent earnings announcements. Relative to its peers and sector, Chevron has been a year-to-date performance leader. 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.