Chevron Corp Valuation – April 2019 #CVX

Company Profile (excerpt from Reuters): Chevron Corporation (Chevron), incorporated on January 27, 1926, manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in integrated energy and chemicals operations. The Company operates through two business segments: Upstream and Downstream. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transporting crude oil by international oil export pipelines; processing, transporting, storage and marketing of natural gas, and a gas-to-liquids plant. Downstream operations consist primarily of refining of crude oil into petroleum products; marketing of crude oil and refined products; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVX – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $240,205,960,980 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.25 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -49.28% Fail
6. Moderate PEmg Ratio PEmg < 20 24.83 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.55 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.25 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.19 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.09
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $73.82
MG Value based on 0% Growth $43.28
Market Implied Growth Rate 8.17%
Current Price $126.42
% of Intrinsic Value N/A

Chevron Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $8.41 in 2015 to an estimated $5.09 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chevron Corporation revealed the company was trading above its Graham Number of $102.65. The company pays a dividend of $4.48 per share, for a yield of 3.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24.83, which was below the industry average of 52.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-33.68.

Chevron Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$33.68
Graham Number $102.65
PEmg 24.83
Current Ratio 1.25
PB Ratio 1.55
Current Dividend $4.48
Dividend Yield 3.54%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $34,021,000,000
Total Current Liabilities $27,171,000,000
Long-Term Debt $28,733,000,000
Total Assets $253,863,000,000
Intangible Assets $4,518,000,000
Total Liabilities $98,221,000,000
Shares Outstanding (Diluted Average) 1,906,314,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.79
Dec2018 $7.74
Dec2017 $4.85
Dec2016 -$0.27
Dec2015 $2.45
Dec2014 $10.14
Dec2013 $11.09
Dec2012 $13.32
Dec2011 $13.44
Dec2010 $9.48
Dec2009 $5.24
Dec2008 $11.67
Dec2007 $8.77
Dec2006 $7.80
Dec2005 $6.54
Dec2004 $6.28
Dec2003 $3.48
Dec2002 $0.53
Dec2001 $1.55
Dec2000 $3.99
Dec1999 $1.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.09
Dec2018 $4.82
Dec2017 $4.13
Dec2016 $4.96
Dec2015 $8.41
Dec2014 $11.43
Dec2013 $11.55
Dec2012 $11.40
Dec2011 $10.20
Dec2010 $8.58
Dec2009 $8.09
Dec2008 $9.08
Dec2007 $7.38
Dec2006 $6.10
Dec2005 $4.72
Dec2004 $3.60
Dec2003 $2.25

Recommended Reading:

Other ModernGraham posts about the company

5 Overvalued Dow Components – April 2019
5 Overvalued Dow Components – January 2019
Chevron Corp Valuation – November 2018 $CVX
5 Overvalued Dow Components – June 2018
5 Overvalued Dow Components – February 2018

Other ModernGraham posts about related companies

Pioneer Natural Resources Co Valuation – April 2019 #PXD
Schlumberger NV Valuation – March 2019 #SLB
Anadarko Petroleum Corp Valuation – March 2019 #APC
Apache Corp Valuation – March 2019 #APA
Cabot Oil & Gas Corp Valuation – March 2019 #COG
Concho Resources Inc Valuation – March 2019 #CXO
Valero Energy Corp Valuation – March 2019 #VLO
Occidental Petroleum Corp Valuation – March 2019 #OXY
Phillips 66 Valuation – March 2019 #PSX
Halliburton Co Valuation – March 2019 #HAL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Chevron Corp Valuation – November 2018 $CVX

Company Profile (excerpt from Reuters): Chevron Corporation (Chevron), incorporated on January 27, 1926, manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in integrated energy and chemicals operations. The Company operates through two business segments: Upstream and Downstream. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transporting crude oil by international oil export pipelines; processing, transporting, storage and marketing of natural gas, and a gas-to-liquids plant. Downstream operations consist primarily of refining of crude oil into petroleum products; marketing of crude oil and refined products; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVX – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $228,998,726,088 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.22 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -53.76% Fail
6. Moderate PEmg Ratio PEmg < 20 23.64 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.48 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.22 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.66 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.06
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $73.30
MG Value based on 0% Growth $42.97
Market Implied Growth Rate 7.57%
Current Price $119.51
% of Intrinsic Value N/A

Chevron Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $11.43 in 2014 to an estimated $5.06 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.57% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chevron Corporation revealed the company was trading below its Graham Number of $121.52. The company pays a dividend of $4.32 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.64, which was below the industry average of 60.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-34.6.

Chevron Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$34.60
Graham Number $121.52
PEmg 23.64
Current Ratio 1.22
PB Ratio 1.48
Current Dividend $4.32
Dividend Yield 3.61%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $35,583,000,000
Total Current Liabilities $29,183,000,000
Long-Term Debt $29,854,000,000
Total Assets $256,606,000,000
Intangible Assets $4,518,000,000
Total Liabilities $101,933,000,000
Shares Outstanding (Diluted Average) 1,917,474,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.44
Dec2017 $4.85
Dec2016 -$0.27
Dec2015 $2.45
Dec2014 $10.14
Dec2013 $11.09
Dec2012 $13.32
Dec2011 $13.44
Dec2010 $9.48
Dec2009 $5.24
Dec2008 $11.67
Dec2007 $8.77
Dec2006 $7.80
Dec2005 $6.54
Dec2004 $6.28
Dec2003 $3.48
Dec2002 $0.53
Dec2001 $1.55
Dec2000 $3.99
Dec1999 $1.57
Dec1998 $1.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.06
Dec2017 $4.13
Dec2016 $4.96
Dec2015 $8.41
Dec2014 $11.43
Dec2013 $11.55
Dec2012 $11.40
Dec2011 $10.20
Dec2010 $8.58
Dec2009 $8.09
Dec2008 $9.08
Dec2007 $7.38
Dec2006 $6.10
Dec2005 $4.72
Dec2004 $3.60
Dec2003 $2.25
Dec2002 $1.66

Recommended Reading:

Other ModernGraham posts about the company

5 Overvalued Dow Components – June 2018
5 Overvalued Dow Components – February 2018
Chevron Corp Valuation – February 2018 $CVX
Chevron Corporation Valuation – March 2017 $CVX
5 Overvalued Dow Components – February 2017

Other ModernGraham posts about related companies

Cenovus Energy Inc Valuation – October 2018 $TSE-CVE
CNX Resources Corp Valuation – September 2018 $CNX
Carbo Ceramics Inc Valuation – August 2018 $CRR
Murphy Oil Corp Valuation – August 2018 $MUR
Suncor Energy Inc Valuation – August 2018 $TSE:SU
Tidewater Inc Valuation – August 2018 $TDW
Carrizo Oil & Gas Inc Valuation – August 2018 $CRZO
Denbury Resources Inc Valuation – August 2018 $DNR
California Resources Corp Valuation – August 2018 $CRC
Crew Energy Inc Valuation – August 2018 $TSE-CR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Chevron Corp Valuation – February 2018 $CVX

Company Profile (obtained from Marketwatch): Chevron Corp. engages in the business of integrated energy and chemical operations. It operates through the Upstream and Downstream segments. The Upstream segment consists primarily of exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transporting crude oil by major international oil export pipelines; transporting, storage and marketing of natural gas; and a gas-to-liquids project. The Downstream segment consists primarily of refining crude oil into petroleum products; marketing of crude oil and refined products; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives. The company was founded in 1906 and is headquartered in San Ramon, CA.

CVX Chart

CVX data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVX – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $213,850,502,584 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.04 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -68.25% Fail
6. Moderate PEmg Ratio PEmg < 20 30.47 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.45 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.04 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 28.92 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.70
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $53.58
MG Value based on 0% Growth $31.41
Market Implied Growth Rate 10.98%
Current Price $112.59
% of Intrinsic Value N/A

Chevron Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $11.43 in 2014 to an estimated $3.7 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chevron Corporation revealed the company was trading above its Graham Number of $0. The company pays a dividend of $4.32 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 30.47, which was below the industry average of 63.11, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-41.7.

Chevron Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$41.70
Graham Number $0.00
PEmg 30.47
Current Ratio 1.04
PB Ratio 1.45
Current Dividend $4.32
Dividend Yield 3.84%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2017
Total Current Assets $29,398,000,000
Total Current Liabilities $28,223,000,000
Long-Term Debt $33,983,000,000
Total Assets $255,160,000,000
Intangible Assets $4,531,000,000
Total Liabilities $108,447,000,000
Shares Outstanding (Diluted Average) 1,895,879,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.36
Dec2017 $4.85
Dec2016 -$0.27
Dec2015 $2.45
Dec2014 $10.14
Dec2013 $11.09
Dec2012 $13.32
Dec2011 $13.44
Dec2010 $9.48
Dec2009 $5.24
Dec2008 $11.67
Dec2007 $8.77
Dec2006 $7.80
Dec2005 $6.54
Dec2004 $6.28
Dec2003 $3.48
Dec2002 $0.53
Dec2001 $1.55
Dec2000 $3.99
Dec1999 $1.57
Dec1998 $1.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.70
Dec2017 $4.13
Dec2016 $4.96
Dec2015 $8.41
Dec2014 $11.43
Dec2013 $11.55
Dec2012 $11.40
Dec2011 $10.20
Dec2010 $8.58
Dec2009 $8.09
Dec2008 $9.08
Dec2007 $7.38
Dec2006 $6.10
Dec2005 $4.72
Dec2004 $3.60
Dec2003 $2.25
Dec2002 $1.66

Recommended Reading:

Other ModernGraham posts about the company

Chevron Corporation Valuation – March 2017 $CVX
5 Overvalued Dow Components – February 2017
Chevron Corp Valuation – August 2016 $CVX
5 Most Overvalued Dow Components – July 2015
5 Most Overvalued Dow Components – June 2015

Other ModernGraham posts about related companies

Seven Generations Energy Ltd Valuation – Initial Coverage $TSE:VII
Pioneer Natural Resources Valuation – September 2017 $PXD
Gulfport Energy Corp Valuation – Initial Coverage $GPOR
Schlumberger Limited Valuation – July 2017 $SLB
Tesco Corporation (USA) Valuation – Initial Coverage $TESO
Southwestern Energy Company Valuation – July 2017 $SWN
Apache Corp Valuation – April 2017 $APA
Anadarko Petroleum Co Valuation – April 2017 $APC
Cenovus Energy Inc Valuation – Initial Coverage $TSE:CVE
Cabot Oil & Gas Corp Valuation – March 2017 $COG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Chevron Corporation Valuation – March 2017 $CVX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Chevron Corporation (CVX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in integrated energy and chemicals operations. The Company operates through two business segments: Upstream and Downstream. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; liquefaction, transportation and regasification associated with liquefied natural gas; transporting crude oil by international oil export pipelines; processing, transporting, storage and marketing of natural gas, and a gas-to-liquids plant. Downstream operations consist primarily of refining of crude oil into petroleum products; marketing of crude oil and refined products; transporting of crude oil and refined products, and manufacturing and marketing of commodity petrochemicals.

CVX Chart

CVX data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVX – March 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $200,232,491,397 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.93 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -78.33% Fail
6. Moderate PEmg Ratio PEmg < 20 29.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.39 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.93 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -16.25 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $3.69
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $53.50
MG Value based on 0% Growth $31.36
Market Implied Growth Rate 10.35%
Current Price $107.73
% of Intrinsic Value N/A

Chevron Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $11.55 in 2013 to an estimated $3.69 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.35% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chevron Corporation revealed the company was trading above its Graham Number of $78.37. The company pays a dividend of $4.29 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 29.2, which was below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-45.33.

Chevron Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$45.33
Graham Number $78.37
PEmg 29.20
Current Ratio 0.93
PB Ratio 1.39
Current Dividend $4.29
Dividend Yield 3.98%
Number of Consecutive Years of Dividend Growth 20

 

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $29,619,000,000
Total Current Liabilities $31,785,000,000
Long-Term Debt $35,193,000,000
Total Assets $260,078,000,000
Intangible Assets $4,581,000,000
Total Liabilities $114,522,000,000
Shares Outstanding (Diluted Average) 1,873,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.54
Dec2016 -$0.27
Dec2015 $2.45
Dec2014 $10.14
Dec2013 $11.09
Dec2012 $13.32
Dec2011 $13.44
Dec2010 $9.48
Dec2009 $5.24
Dec2008 $11.67
Dec2007 $8.77
Dec2006 $7.80
Dec2005 $6.54
Dec2004 $6.28
Dec2003 $3.48
Dec2002 $0.53
Dec2001 $1.55
Dec2000 $3.99
Dec1999 $1.57
Dec1998 $1.02
Dec1997 $2.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.69
Dec2016 $4.96
Dec2015 $8.41
Dec2014 $11.43
Dec2013 $11.55
Dec2012 $11.40
Dec2011 $10.20
Dec2010 $8.58
Dec2009 $8.09
Dec2008 $9.08
Dec2007 $7.38
Dec2006 $6.10
Dec2005 $4.72
Dec2004 $3.60
Dec2003 $2.25
Dec2002 $1.66
Dec2001 $2.19

Recommended Reading:

Other ModernGraham posts about the company

5 Overvalued Dow Components – February 2017
Chevron Corp Valuation – August 2016 $CVX
5 Most Overvalued Dow Components – July 2015
5 Most Overvalued Dow Components – June 2015
Chevron Corporation Analysis – 2015 Annual Update $CVX

Other ModernGraham posts about related companies

CARBO Ceramics Inc Valuation – Initial Coverage $CRR
Concho Resources Inc Valuation – Initial Coverage $CXO
Murphy Oil Corporation Valuation – March 2017 $MUR
Suncor Energy Inc Valuation – Initial Coverage $TSE:SU
CST Brands Inc Valuation – Initial Coverage $CST
Valero Energy Corp Valuation – February 2017 $VLO
Tidewater Inc Valuation – February 2017 $TDW
Occidental Petroleum Corp Valuation – February 2017 $OXY
Carrizo Oil & Gas Inc Valuation – Initial Coverage $CRZO
Denbury Resources Inc Valuation – February 2017 $DNR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Chevron Corp Valuation – August 2016 $CVX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Chevron Corp (CVX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in integrated energy and chemicals operations. The Company operates through two business segments: Upstream and Downstream. The Upstream segment consists primarily of exploring for, developing and producing crude oil and natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas, and a gas-to-liquids plant. Downstream operations consist primarily of refining crude oil into petroleum products; marketing of crude oil and refined products; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives.

chart (73)

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CVX – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $194,587,730,878 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -55.30% Fail
6. Moderate PEmg Ratio PEmg < 20 22.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.32 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.23 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

CVX value chart August 2016

EPSmg $4.68
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $67.83
MG Value based on 0% Growth $39.76
Market Implied Growth Rate 6.82%
Current Price $103.55
% of Intrinsic Value N/A

Chevron Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $11.4 in 2012 to an estimated $4.68 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chevron Corporation revealed the company was trading above its Graham Number of $0. The company pays a dividend of $4.28 per share, for a yield of 4.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.14, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-43.72.

Chevron Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

CVX charts August 2016

Net Current Asset Value (NCAV) -$43.72
Graham Number $0.00
PEmg 22.14
Current Ratio 1.30
PB Ratio 1.32
Current Dividend $4.28
Dividend Yield 4.13%
Number of Consecutive Years of Dividend Growth 20

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $32,471,000,000
Total Current Liabilities $24,927,000,000
Long-Term Debt $39,487,000,000
Total Assets $261,478,000,000
Intangible Assets $4,581,000,000
Total Liabilities $114,315,000,000
Shares Outstanding (Diluted Average) 1,871,995,000

Earnings Per Share History

Next Fiscal Year Estimate -$1.11
Dec2015 $2.45
Dec2014 $10.14
Dec2013 $11.09
Dec2012 $13.32
Dec2011 $13.44
Dec2010 $9.48
Dec2009 $5.24
Dec2008 $11.67
Dec2007 $8.77
Dec2006 $7.80
Dec2005 $6.54
Dec2004 $6.28
Dec2003 $3.48
Dec2002 $0.53
Dec2001 $1.55
Dec2000 $3.99
Dec1999 $1.57
Dec1998 $1.02
Dec1997 $2.48
Dec1996 $2.00

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.68
Dec2015 $8.41
Dec2014 $11.43
Dec2013 $11.55
Dec2012 $11.40
Dec2011 $10.20
Dec2010 $8.58
Dec2009 $8.09
Dec2008 $9.08
Dec2007 $7.38
Dec2006 $6.10
Dec2005 $4.72
Dec2004 $3.60
Dec2003 $2.25
Dec2002 $1.66
Dec2001 $2.19
Dec2000 $2.41

Recommended Reading:

Other ModernGraham posts about the company

5 Most Overvalued Dow Components – July 2015
5 Most Overvalued Dow Components – June 2015
Chevron Corporation Analysis – 2015 Annual Update $CVX
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – June 2015
5 Low PEmg Stocks for the Defensive Investor – May 2015

Other ModernGraham posts about related companies

National-Oilwell Varco Inc Valuation – August 2016 $NOV
Newfield Exploration Co Valuation – August 2016 $NFX
EOG Resources Inc Valuation – July 2016 $EOG
Noble Corp PLC Valuation – July 2016 $NE
Baker Hughes Inc Valuation – July 2016 $BHI
Rowan Companies PLC Valuation – July 2016 $RDC
ConocoPhillips Valuation – July 2016 $COP
Devon Energy Corp Valuation – July 2016 $DVN
Noble Energy Inc Valuation – July 2016 $NBL
Diamond Offshore Drilling Inc Valuation – July 2016 $DO

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Chevron Corporation Analysis – 2015 Annual Update $CVX

500px-Chevron_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – May 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Chevron Corporation (CVX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Chevron Corporation is a holding company. Chevron, through its subsidiaries, is engaged in petroleum operations, chemicals operations, mining operations, and power and energy services. The Company operates through two business segments: upstream and downstream. Its upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas; and a gas-to-liquids project. Downstream operations consist of refining crude oil into petroleum products; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. The Company’s other businesses include mining, and power and energy services.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $102.44
MG Value $33.69
MG Opinion Overvalued
Value Based on 3% Growth $125.19
Value Based on 0% Growth $73.39
Market Implied Growth Rate 1.68%
Net Current Asset Value (NCAV) -$38.65
PEmg 11.86
Current Ratio 1.40
PB Ratio 1.23

Balance Sheet – March 2015

Current Assets $41,270,000,000
Current Liabilities $29,445,000,000
Total Debt $30,025,000,000
Total Assets $269,604,000,000
Intangible Assets $4,588,000,000
Total Liabilities $113,801,000,000
Outstanding Shares 1,876,500,000

Earnings Per Share

2015 (estimate) $3.12
2014 $10.14
2013 $11.09
2012 $13.32
2011 $13.44
2010 $9.48
2009 $5.24
2008 $11.67
2007 $8.77
2006 $7.80
2005 $6.54

Earnings Per Share – ModernGraham

2015 (estimate) $8.63
2014 $11.43
2013 $11.55
2012 $11.40
2011 $10.20
2010 $8.58

Dividend History

Conclusion:

As this stock analysis shows, Chevron Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, and the insufficient earnings growth over the last ten years.  The Enterprising Investor is concerned with the level of debt relative to the current assets and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $10.20 in 2011 to only an estimated $8.63 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 1.68% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value well below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Chevron Corporation (CVX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Chevron Corporation Quarterly Valuation – February 2015 $CVX

Chevron passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the low current ratio. The Enterprising Investor is concerned with the level of debt relative to the current assets, but is willing to overlook those concerns since the company qualifies for the more conservative Defensive Investor. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, Chevron has grown its EPSmg (normalized earnings) from $8.58 in 2010 to $11.43 for 2014. This level of demonstrated growth is well above the market’s implied estimate for earnings growth of only 0.42% annually over the next 7-10 years. In fact, the historical growth is around 6.63% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.

Be sure to check out previous ModernGraham valuations of Chevron Corporation (CVX) for a greater perspective!

Read the full valuation on Seeking Alpha!

CVX Chart

CVX data by YCharts

Disclaimer: The author did not hold a position in Chevron Corporation (CVX) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Chevron Corporation Quarterly Valuation – November 2014 $CVX

500px-Chevron_Logo.svg

Chevron Corporation passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the low current ratio while the Enterprising Investor is willing to overlook concerns because the company passes the more conservative Defensive Investor requirements. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $8.58 in 2010 to an estimated $11.38 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 0.81% over the next 7-10 years. In fact, the historical growth is around 6.53% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and therefore returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.

Be sure to check out previous ModernGraham valuations of Chevron Corporation for a greater perspective!

Read the full valuation on Seeking Alpha!

CVX Chart

CVX data by YCharts

Disclaimer:  The author did not hold a position in Chevron Corporation (CVX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Chevron Corporation Quarterly Valuation – August 2014 $CVX

500px-Chevron_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Chevron Corporation (CVX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining activities, power generation and energy services. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; processing, transportation and regasification associated with liquefied natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas, and a gas-to-liquids project. Downstream operations consist primarily of refining crude oil into petroleum products; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives.
CVX Chart

CVX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $128.43
MG Value $215.36
MG Opinion Undervalued
Value Based on 3% Growth $166.81
Value Based on 0% Growth $97.78
Market Implied Growth Rate 1.33%
Net Current Asset Value (NCAV) -$31.36
PEmg 11.16
Current Ratio 1.35
PB Ratio 1.59

Balance Sheet – 6/30/2014

Current Assets $48,920,000,000
Current Liabilities $36,328,000,000
Total Debt $20,050,000,000
Total Assets $262,045,000,000
Intangible Assets $4,621,000,000
Total Liabilities $108,464,000,000
Outstanding Shares 1,898,930,000

Earnings Per Share

2014 (estimate) $10.31
2013 $11.09
2012 $13.43
2011 $13.44
2010 $9.48
2009 $5.24
2008 $11.67
2007 $8.77
2006 $7.80
2005 $6.54
2004 $6.14

Earnings Per Share – ModernGraham

2014 (estimate) $11.50
2013 $11.58
2012 $11.43
2011 $10.20
2010 $8.58
2009 $8.09

Dividend History

CVX Dividend Chart

CVX Dividend data by YCharts

Conclusion:

Chevron Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the low current ratio, while the Enterprising Investor is satisfied by default despite concerns with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $8.58 in 2010 to an estimated $11.50 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.33% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of Chevron Corp (CVX) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Chevron Corp (CVX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Chevron Corp (CVX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Company of the Week: Chevron Corp $CVX

image (12)The ModernGraham approach to investing has multiple layers to it.  Regular readers will be familiar with the first two steps; the first is to determine if the company is suitable for the Defensive Investor or the Enterprising Investor, and the second is to compare the price to the intrinsic value through quantitative analysis.  The next step in the analysis is to review the company’s management and other qualitative factors to determine how the company may compare to other companies that pass the first two steps.  In this Company of the Week series, we will delve into more detail about a specific company that performed well in the first two areas.  This week, the company chosen, Chevron Corp, is currently significantly undervalued based on the ModernGraham valuation model.

 

Results of Recent Valuation

Please be sure to review ModernGraham’s latest valuation of Chevron Corp in detail, but here is also a summary:

Chevron Corporation qualifies for both Defensive Investors and Enterprising Investors.  The Defensive Investor is only concerned with the low current ratio, and the company by default also qualifies for the Enterprising Investor.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors through a review of ModernGraham’s valuation of Exxon Mobil (XOM) and ModernGraham’s valuation of Conoco Philips (COP).  From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $8.58 in 2010 to an estimated $11.17 in 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.27% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price.

Further Analysis

Price trend compared to the market

In the following chart, it is clear that recently the market has not viewed Chevron in a very favorable light.  In Chevron’s case that means the price has been driven down, but the earnings continue to demonstrate strong value.  Intelligent Investors know that the price trend has nothing to do with value, but this portion of an analysis can be useful in trying to understand Mr. Market’s movements.

CVX Chart

CVX data by YCharts

Earnings Per Share

The next chart shows Chevron’s earnings per share over the last 20 years.  At first glance, the reader will notice the recent drop in earnings over the last couple of years, and a speculator would conclude the company is on another downward trend and end the analysis there.  But it is important to see the overall trend in the earnings, which indicate an upward movement over time.  Notice that even with the significant swings, it is easy to extrapolate an upward trajectory.  This conclusion is supported further in an analysis of the average earnings, a measure on ModernGraham called EPSmg.  Chevron has seen a rise in EPSmg from $8.09 in 2009 to an estimated $11.17 for 2014.

CVX EPS Diluted (TTM) Chart

CVX EPS Diluted (TTM) data by YCharts

Price to Book

In another confirmation that Chevron would seem to be an excellent value at this point in time, the price to book ratio is well below where it has normally been seen in the last 20 years.  As a result, it is possible we could see Mr. Market turn around and start pricing the company higher.

CVX Price to Book Value Chart

CVX Price to Book Value data by YCharts

Dividends

Dividend payments should be a critical part of any intelligent investment analysis.  There is no better way to ensure a return on investment than through dividend income.  With Chevron, it is clear the company places a high priority on its dividend payments, and the company has demonstrated commitment to frequently raising the dividend amount.  In fact, the dividend is approximately five times the size it was 20 years ago.  If that trend continues, as it should, the company would appear extremely attractive today.

CVX Dividend Chart

CVX Dividend data by YCharts

ModernGraham Conclusion

Chevron is a very intriguing company for both Defensive Investors and Enterprising Investors to consider.  In addition, the quantitative analysis shows the company to be significantly undervalued.  It is possible that Mr. Market has overreacted to any perceived troubles the company has had in the recent past, speculating that the company’s recent dip in earnings demonstrates a long-term change in the company’s prospects.  However, as has been seen time and time again, large companies often have the resources to weather the ebbs and flows of business competition and that may be the case with Chevron as well.

Management Tenets

Warren Buffett has promoted looking at some key management tenets, and I’d like to leave it up to readers to discuss how JP Morgan fulfills (or fails to fulfill) these qualities.  Please discuss the following in the comments below:

  1. Is the business simple and understandable?
  2. Does the business have a consistent operating history?
  3. Does the company have favorable long-term prospects?
  4. Is management rational?
  5. Is management candid with shareholders?

Disclosure:  The author did not hold a position in any company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

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