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.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$53.58|
|MG Value based on 0% Growth||$31.41|
|Market Implied Growth Rate||10.98%|
|% 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|
|Number of Consecutive Years of Dividend Growth||20|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
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|
|Shares Outstanding (Diluted Average)||1,895,879,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$4.36|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$3.70|
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
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.