ModernGraham Valuation: Chevron Corp (CVX)


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.

Defensive and Enterprising Investor Tests (explanation):

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: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  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 (explanation):

MG Value $255
MG Opinion Undervalued
Value Based on 3% Growth $169
Value Based on 0% Growth $99
Market Implied Growth Rate 0.90%
Net Current Asset Value (NCAV) -$23.34
PEmg 10.29
Current Ratio 1.68
PB Ratio 1.63

Key Data:

Balance Sheet – 6/30/2013

Current Assets $56,104,000,000
Current Liabilities $33,413,000,000
Total Debt $18,051,000,000
Total Assets $244,048,000,000
Intangible Assets $4,640,000,000
Total Liabilities $101,207,000,000
Outstanding Shares 1,932,020,000

 Earnings Per Share – Diluted

2013 (estimate) $11.29
2012 $13.51
2011 $13.50
2010 $9.53
2009 $5.28
2008 $11.67
2007 $8.77
2006 $7.80
2005 $6.55
2004 $6.14
2003 $3.55
2002 $0.52

Earnings Per Share – Modern Graham

2013 (estimate) $11.69
2012 $11.49
2011 $10.24
2010 $8.61
2009 $8.10
2008 $9.07


Chevron passes almost all of the tests for both the defensive and enterprising intelligent investors, with the sole exception being that its current ratio is not quite strong enough for the defensive investor.  As a result, Chevron deserves more thorough research from potential investors.  It also appears the company may be undervalued due to very high earnings growth over the last few years that may not be adequately reflected by the market.

What do you think?  Will Chevron continue to see earnings growth at a rate above the 0.9% the market is implying?

Photo Credit:  Andrew Magill






6 responses to “ModernGraham Valuation: Chevron Corp (CVX)”

  1. DividendGarden Avatar

    I do think that Chevron is undervalued, and I love the company. Strong FCF, low debt servicing costs. Thanks for the article.

    1. Benjamin Clark Avatar

      Thanks for the comment!

  2. Colton Avatar

    You did not include the disclaimer? Do you currently hold shares in Chevron at this time? Not trying to be an SEC hawk, just curious about your own portfolio. Thanks

    1. Benjamin Clark Avatar

      Colton, I simply wasn’t adding a disclaimer to my valuations at that time. I have never owned CVX.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.