Chevron has had an impressive run over the past six months as its shares have beaten the S&P 500 by 9.5%. The stock now trades at $177.80, marking a 20.4% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is CVX a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does Chevron Spark Debate?
Operating everything from deepwater drilling rigs to corner gas stations, Chevron (NYSE: CVX) explores for, produces, and transports crude oil and natural gas, then refines that crude oil into gasoline, diesel, and other petroleum products.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Thankfully, Chevron’s 14.8% annualized revenue growth over the last five years was solid. Its growth surpassed the average energy upstream and integrated energy company and shows its offerings resonate with customers.
2. Economies of Scale Give It Negotiating Leverage with Suppliers
The size of the revenue base is a way to assess topline, and it tells an investor whether an Energy producer has crossed the line between being a more vulnerable commodity taker and a durable operating platform. Scaled businesses tend to produce and generate revenue from many wells, pads, takeaway routes, and geographies, not just a single field or drilling program.
Chevron’s $190 billion of revenue in the last year is top-tier for the industry, suggesting the type of diversification that reduces operational risk.
One Reason to Be Careful:
Shrinking EBITDA Margin
Adjusted EBITDA margin strips out accounting distortions tied to depletion and historical drilling spend, providing a clearer view of the cash-generating power of the underlying asset base before financing and reinvestment decisions.
Looking at the trend in its profitability, Chevron’s EBITDA margin decreased by 2.8 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Chevron’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its EBITDA margin for the trailing 12 months was 22.5%.
Final Judgment
Chevron’s merits more than compensate for its flaws, and with its shares topping the market in recent months, the stock trades at 10.9× forward P/E (or $177.80 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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