Where Will Chevron Go Next?

With shares of Chevron (NYSE:CVX) trading around $120, 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 released its earnings update for the first two months of the fourth-quarter in 2014, which showed results the company noted were comparable to the the third quarter of last year. Upstream data showed lower net oil-equivalent production in both the U.S. and overseas facilities, while whole downstream earnings showed higher input at U.S. facilities. Chevron stock was down over 2 percent following the interim earnings report. In lieu of the full results from the fourth-quarter of 2013, Chevron provided an interim earnings update based on the first two months of the quarter for shareholders and energy industry analysts on January 9. Upstream data showed U.S. liquid production and realization down slightly during the period in question while natural gas was up during the first two months of the quarter when compared to the third-quarter of 2013.

T = Technicals on the Stock Chart Are Mixed

Chevron stock has been moving higher in the past several 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 between 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

17.67%

60%

58%

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

February Options

Average

Average

March Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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

-1.62%

-1.17%

1.29%

1.17%

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

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

-3.26%

1.05%

0.87%

-1.26%

-1.65%

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 released its earnings update for the first two months of the fourth-quarter in 2014, which showed results the company noted were comparable to the the third-quarter of last year. The stock has been moving higher, but is now pulling back. 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 poor year-to-date performer. WAIT AND SEE what Chevron does this coming quarter.

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