Chevron Is The Last Oil Stock That Remains In The Dow
Chevron Corp CVX is in a tricky situation. As humanity’s dependence on fossil fuels falls to the wayside due to the need for cleaner alternatives, the company has struggled to maintain consistent earnings. A sudden drop in fuel usage due to the pandemic and tightening wallets has further depressed personal fossil fuel purchases.
In fact, the company’s earnings have decreased to the point that Chevron has laid off employees to the tune of $780 million in severance costs in 2020. However, the pandemic can’t shoulder all the blame.
Chevron’s stock was on the decline even before the market crashed in early 2020. While the company temporarily enjoyed a rapid uptick afterward, their price is moving downward, leading to Chevron underperforming the S&P 500 for the third quarter this year.
As a matter of fact, the company wrote down the value of its assets by an unprecedented $1.8 billion in 2020 on the expectation of weaker commodity prices. This measure may position Chevron for future gains – both in the stock market and the balance sheet – but realizing this potential will be an uphill battle.
All of this leaves investors in a tricky place, as well. When is the right time to buy into a declining company on the hopes of earning on the stock’s inevitable rise? Alternatively, when is it time to abandon ship for good in favor of more profitable – and sustainable – prospects?
While we can’t provide the company’s financial outlook for you, Qai’s deep-learning AI (artificial intelligence) can offer a recommendation to move (or not) on the company’s stock. Before we jump straight into our AI’s advice, however, let’s take a look at what the numbers have to say.
Sign up for the free Forbes AI Investor newsletter here to join an exclusive AI investing community and get premium investing ideas before markets open.
Chevron Corp (CVX)
Chevron Corp closed up 0.85% on Friday, ending the week at $85.63 on volume of 7.3 million shares. The company’s stock has had an up-and-down few months, and August has been no exception, as evidenced in the 10- and 22-day price averages ($86.20 and $86.36, respectively). Overall, the stock is down 26.6% for the year.
The company’s other financial metrics reflect a mixed bag of a company, as well. For instance, revenue is up from $127.5 billion to $139.9 billion over the past three years. While the numbers are enormous from the layman’s perspective, they’re a drop in the bucket for an international, multi-billion-dollar oil and natural gas conglomerate.
Operating income far and wide blew revenue out of the water. Whereas revenue had a comparatively paltry increase of 9.7% in three years, operating income skyrocketed nearly 199.5% in the same time frame, from $3.5 billion to almost $10.5 billion.
Currently, the company is trading with a forward 12-month P/E ratio of 47.11. Additionally, revenue is expected to grow over 18% by next year as travel and trade – and thus fossil fuel consumption – increase once more.
However, that’s where the good news stops, as Chevron Corp’s EPS current sits at $1.54. This is a drastic drop from 2017’s $4.85 per share earnings – down 68% over a span of 36 months. Furthermore, whereas ROE was almost 6.3% three years ago, Chevron reported a drastically reduced ROE of 1.89% as of August 2020.
What’s the Verdict?
These numbers may bode well for the company’s financial outlook in the long run, but if Chevron has proved anything in 2020, it’s company first, investors second. For the average person looking to make it in the market, this means that taking on Chevron’s stock is a gamble that may not pay off.
While we can’t predict the future with certainty, we can tell you that our AI views this company as average across the board. We’ve graded Chevron Corp with C’s in Growth, Momentum Volatility, and Quality Value (though it did earn a B in Technical).
As a result of the company’s performance and our analysis of these indicators, our AI has graded Chevron Neutral overall.
In other words, invest on your own cognizance.
Liked what you read? Sign up for our free Forbes AI Investor Newsletter here to get AI driven investing ideas weekly. For a limited time, subscribers can join an exclusive slack group to get these ideas before markets open.