CHEVRON CORP. $72 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $144.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 4.0%; WSSF Rating: Above Average) is the second-largest integrated oil company in the U.S., after ExxonMobil. Chevron gets 95% of its earnings by producing oil and natural-gas. The remaining 5% comes from its refineries, petrochemical operations and gas stations.
In response to the BP oil spill, the Obama administration has banned some drilling in the Gulf of Mexico. This forced Chevron to temporarily shut down an operational well and an exploratory well.
However, these shutdowns will probably have little impact on Chevron. That’s because these wells represent a small fraction of its operations in the gulf. As well, the gulf accounts for just 9% of its overall production.
Meanwhile, the company earned $4.6 billion, or $2.27 a share, in the three months ended March 31, 2010. That’s up 147.8% from $1.8 billion, or $0.92 a share, a year earlier. Cash flow per share jumped 92.8%, to $3.74 from $1.94. Revenue rose 33.3%, to $48.2 billion from $36.1 billion.
Higher oil and gas prices were the main reasons for the gains. Chevron’s average selling price for oil rose 97.2% in the U.S. and 79.5% overseas. As well, it started production at new projects in the U.S., Nigeria, Angola and Kazakhstan. That pushed up its average daily production by 4.5%.
Earnings at the company’s other businesses fell 74.0% in the quarter, largely because it sold refineries and gas stations. Rising oil prices have increased input costs at its refineries, and hurt their profits.
By selling refineries, Chevron is freeing up cash for more promising ventures, including its 47.3%-owned Gorgon natural-gas project off the west coast of Australia. Gorgon should start producing in 2014. This project should help Chevron take advantage of rising demand for cleaner-burning fuels in Asia.
Chevron now trades at just 8.2 times its forecast earnings of $8.81 a share, and at 4.7 times its likely cash flow of $15.35 a share.
Chevron is a buy.
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