CHEVRON CORP. $85 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $178.5 billion; WSSF Rating: Above average) is the secondlargest integrated oil company in the United States after ExxonMobil. Production accounts for about 80% of its earnings. The remaining 20% comes from refineries and retail gas stations.
Chevron’s revenue in the second quarter of 2008 rose 47.9%, to $83.0 billion from $56.1 billion a year earlier. However, earnings rose just 15.1%, to $2.90 a share (total $6.0 billion) from $2.52 a share ($5.4 billion). That’s mainly because Chevron’s refineries had to pay about 70% more for crude oil. Due to the combination of lower sales and higher operating costs, the company’s U.S. refineries lost $682 million in the latest quarter. Cash flow per share in the quarter rose 29.4%, to $7.66 from $5.92.
The stock hit a new all-time high of $105 in May, 2008, but fell to $78 in September as oil prices fell to about $90 a barrel. However, the stock has moved up to its current price due to the recent surge in oil to $110 a barrel.
Chevron plans to spend $23 billion (about $12 a share) in 2008 on exploration and capital upgrades. That’s about 80% of the company’s projected cash flow of $15 a share. Chevron held cash of $8.6 billion ($4.19 a share) at June 30, 2008, so it can easily afford these outlays. As well, long-term debt of $5.8 billion is just 3% of its market cap.
Based on current oil prices, the stock now trades at just 7.0 times this year’s forecast earnings of $12.21 a share, and 5.7 times cash flow. The $2.60 dividend yields 3.1%.
Chevron is a buy.
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