Chevron: A Resilient Energy Company

Published on Dec. 15, 2023.

Chevron, despite facing some challenges in 2023, continues to maintain its position as one of the world's top energy companies. While the stock has experienced a decline of 16.5% in 2023 (worse than its peers like Exxon Mobil, down 8%), the company's solid leadership and operations make it an attractive option for investors.

Chevron's performance in 2023 was impacted by production shortfalls in two major oil fields - the Permian basin and Kazakhstan. Additionally, investors were not particularly impressed with the company's $60 billion acquisition of Hess, especially considering that the primary asset of Hess is a 30% stake in the offshore field in Guyana.

However, despite these setbacks, Chevron's stock appears undervalued. Even though 2024 earnings estimates may fall short due to recent weakness in oil and gas prices, the stock is currently trading at a reasonable price-to-earnings ratio of 10.7. Furthermore, it offers a healthy yield of 4.2%, with plans to increase dividends by 8% in January. On top of that, once the Hess deal is finalized, Chevron intends to repurchase $20 billion worth of stock annually, accounting for approximately 6% of its shares.

According to Greg Buckley, an analyst at Adams Funds, Chevron has a lower-risk growth profile compared to its peers and is currently trading at a 15% discount to its average cash-flow multiple. After the completion of the Hess deal, he predicts a total yield (dividends plus buybacks) of around 12%. This compelling valuation makes Chevron an appealing choice for investors.

By Andrew Bary