I didn’t look on Chevron for quite a long time (almost year). Since that time a lot has changed – oil and up and the same is true for CVX, which rallied from around $85 to around $110. Let’s see how business and valuation looks like.
Low oil prices are obviously bad for company, as less cash flow is generated. This is why company spend less for investments and operations. This flexibility in spending is a good sign.
Still tones of cash flows comes from asset sales program, which is in my opinion not good in long term – the less assets company has the smaller potential production is.
Selling assets especially when oil prices are low is strange. Also keep in mind that CVX has a strong balance sheet so is it really necessary to sell now? Well, company showed good quality in long term, but for me it is strange move.
As it comes to valuation (on next year):
EV/EBITDA = 7
P/E = 24
Dividend yield = 4%.
Not bad, but keep in mind that historically yield was even up to 6%. Well, the truth is that when oil price is very low (as it was at the beginning of 2016) investors should close eyes and buy oil related companies. Risky, but oil will never ever go to zero.
What is really hard for me to understand for both XOM and CVX is that share price is around all time high (10-20% drawdown) whereas oil price is quite low from historical perspective. OK, I know that these companies generate superb value, nevertheless for me it is quite to understand.
Summing up, CVX is a difficult business to say something about. Lots of projects, which are hard to be estimated. Rule of thumb is – buy such companies when oil price is low (and shares are traded with huge drawdown). Currently drawdown is not great and I see no reason to buy it.
Disclaimer CVX – no position