Sentiments in the oil & gas industry are quickly reflected on consumers’ behavior and their dispensable income, the country’s economy and its stock market, and global politics and international trade. Today, we talk about Chevron Corporation (NYSE: CVX), one of the leading integrated upstream and downstream players in the United States.
The $321-billion company explores and produces oil and natural gas as well as manufactures lubricants and transportation fuels. Also, it has ventured into technology, insurance, cash management, and debt financing businesses. It is headquartered in San Ramon, CA.
The oil producer is a long-term player, with a profound belief in keeping its shareholders/investors happy in the near to medium term as well. In addition to a shareholder-friendly approach, the ever-growing demand for oil & gas and the ongoing Ukraine-Russia war have added more fuel to Chevron’s growth prospects.
Shares of Chevron have surged 51.4% in the past five years and expanded 58.2% in the past year. Further, the stock has increased 38.2% so far this year.
Now, let’s explore what makes Chevron a hot stock to own.
Solid Industry Fundamentals
The U.S. Energy Information Administrative (EIA) report, Short-Term Energy Outlook, published in March forecasts a 7.6% year-over-year rise in crude oil production (million barrels per day) and a 3.3% increase in the production of dry natural gas (billion cubic feet per day) in 2022.
Energy prices are predicted to be strong in the year, with a 48.3% year-over-year increase expected in Crude Oil West Texas Intermediate (WTI) Spot price and a 1% hike in Natural Gas Henry Hub Spot price.
The government agency’s Annual Energy Outlook report published in March reveals that consumption of petroleum and natural gas will be the highest in the U.S. among all sources of energy through 2050. The average annual change from 2021 to 2050 in consumption of petroleum and other liquids and natural gas is expected to be 0.4% each.
Production of crude oil and lease condensate will increase 0.5% annually, while natural gas plant liquids and dry natural gas production will grow 0.9% and 0.7%, respectively. WTI oil prices are anticipated to increase 0.8% annually, while Natural Gas Henry Hub Spot price is predicted to decline 0.5%.
Robust Production Capabilities & Business Opportunities
In 2021, Chevron’s net oil-equivalent production level grew 0.5% year-over-year, and its proved reserves (net oil-equivalent) increased by 1.3 billion barrels.
Its business opportunities are further solidified through ongoing projects including the Anchor Project (Gulf of Mexico) and the Future Growth Project and the Wellhead Pressure Management Project (Kazakhstan).
In addition, Chevron’s acquisition of Renewable Energy Group, Inc. (NASDAQ: REGI), to conclude in the second half of 2022, is anticipated to boost the company’s renewable energy portfolio. Also, the company is working on a joint venture with Bunge Limited’s (NYSE: BG) North American subsidiary.
In February, Chevron’s Executive Vice-President for Downstream & Chemicals, said, “Chevron expects to create the capacity to produce 100,000 barrels per day of renewable diesel and sustainable aviation fuel by 2030.”
Also, Chevron through its subsidiary will help in the construction of 30 hydrogen fueling stations in California. These stations are anticipated to come online by 2026.
Sound Capital Allocation Policy
Chevron effectively uses its capital to reward shareholders, reduce debts, and invest in growth opportunities.
In 2021, the company returned $11.6 billion to its shareholders through dividend payments and share buybacks. It also lowered debts by $12.9 billion in the year while using $11.7 billion on capital and exploratory expenses.
In January 2022, Chevron increased its quarterly dividend rate by 6% to $1.42 per share.
From 2022 to 2026, Chevron predicts to spend $15-$17 billion annually on capital and exploratory expenses. It targets a 12% return on capital employed and achieving more than 10% CAGR growth in cash flow from operations per share by 2026. Debt reduction, dividend payments, and share buybacks are priorities too.
Wall Street’s Take
On April 6, 2022, Giacomo Romeo, an analyst with Jefferies, reiterated a Hold rating on Chevron while increasing the price target to $146 (11.41% downside potential) from $115.
Also, Paul Sankey of Mizuho Securities recently maintained a Buy rating on Chevron and increased the price target to $185 (12.25% upside potential) from $135.
Overall, Chevron has a Moderate Buy consensus based on 15 Buys, seven Holds, and one Sell. Chevron’s average price target is $165.43, suggesting a 0.38% upside from current levels. The company scores a 9 out of 10 on TipRanks’ Smart Score rating system.
Insight into Other TipRanks Data
The sentiments for Chevron, both Bloggers and News, are Bullish. Retail investors, too, have a Very Positive stance on Chevron.
Also, TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Chevron is currently Very Positive. The hedge funds holdings in Chevron shares have increased by 9.7 million shares in the last quarter.
Conclusion
In January, the Chairman and CEO of Chevron, Mike Wirth, said, “We’re delivering greater value to stockholders today, while working to meet the world’s growing energy demands in a lower carbon future.”
Investment in the second-largest oil & gas company in the United States by market capitalization will be a profitable option for investors.
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