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Chevron Share Appreciation
Over Mid and Long Term Uninspiring

In the recent The Value Line Investment Survey newsletter, the Value Line Research Department has analyzed the equities they classify in the Petroleum (Integrated), Natural Gas (Diversified), Natural Gas Utility, Oil/Gas Distribution, and Pipeline MLP Industries. From all those energy-related stocks, analysts called attention to one of the largest, Chevron (CVX).

Rebounding oil and gas prices, stronger demand for gasoline and jet fuel, and better profit margins on such refined products enabled Chevron to close 2021 on a strong note. The company made good progress during the December quarter, the bottom line made a sharp recovery from the year-ago deficit. Chevron posted sales of $48.1 billion for the term, almost double the prior-year figure. Share net of $2.63 marked a dramatic improvement from the prior-year deficit of $0.33. Chevron returned to the black in 2021, recording earnings of $8.14 a share, while sales jumped nearly 72% to $162.5 billion.

“The company looks well positioned for the near term. We envision that higher energy prices and better consumer demand will continue to be positives for Chevron, with its top and bottom lines probably advancing 5% and 10%-15%, respectively, in 2022.

What’s more, management outlined its 2022 capital and exploratory (or drilling) budget of $15 billion (a 20% increase from last year’s outlay). The lion’s share will be allocated to Chevron’s “upstream” segment which finds and pumps out oil, with the remainder used to shore up its refining and distribution or “downstream” business. In addition, Chevron now expects to repurchase $3 billion to $5 billion in common stock for 2022. The lower share count ought to benefit earnings per share in the years ahead.

This equity is ranked to perform in line with the broader market over the coming six to 12 months (Timeliness: 3). While we look for operations to remain healthy down the road, we don’t envision significant top- and bottom-line growth in the years ahead as Chevron is curbing investment in fossil fuels as demand increases for renewable sources of energy such as wind power. Consequently, expected appreciation in the shares over both the mid and long term is uninspiring. That said, income investors might be attracted to CVX’s high yield, which is well-covered by free cash flow.”

Editor’s Note: The Value Line Investment Survey covers approximately 1,700 large-,mid-, and small cap stocks in more than 90 industries, representing about 90% of the total U.S. stock market capitalization. The proprietary Ranking System makes it simple to tell whether or not a particular stock is a worthwhile investment. Value Line offers a broad array of investment research services. Choose the research service or services that meet your needs at www.valueline.com.

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