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Chevron Tops the Chart on Earnings Growth

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Chevron’s growth estimate

In this series, we’re ranking integrated energy stocks based on their estimated earnings growth in 2018. We’ll begin by reviewing the stock that’s expected to post the highest earnings growth: Chevron (CVX).

Chevron is an American integrated energy company with Upstream and Downstream segments. Chevron ranks first among six integrated companies with 121% expected growth in EPS in 2018. In the first nine months of the year, its adjusted EPS stood at $5.8. In comparison, Chevron’s adjusted EPS were $3.7 in 2017. In the first nine months of 2018, Chevron had already earned more profit than it had in the entire previous year. Further, Chevron is expected to post EPS of $8.2 in 2018, with higher expected YoY (year-over-year) EPS in the fourth quarter.

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Chevron has a robust upstream portfolio, which is expected to drive volume growth. Chevron’s megaprojects, including Gorgon, Wheatstone, and Permian, have been ramping up its volumes. Overall, Chevron expects 7% growth in production volumes in 2018 over 2017. In the first nine months of the year, Chevron achieved 6% YoY growth in volumes. The company’s downstream portfolio should also support its earnings growth. To support growth in the coming years, Chevron has also announced a rise in its budgeted capex for 2019.

Valuations and dividends

Chevron stock is trading at a forward PE of 12.6x, higher than the peer average of 11.0x. The higher valuation the market accords to Chevron could be the result of its growth rate and balance sheet strength. The company has the second-best debt ratio in the industry. It also has a considerable cash flow surplus.

Moving on to dividend yield, Chevron’s current yield stands at 3.9%, below the peer average of 5.1%. However, Chevron has announced that it will buy back shares worth ~$3 billion every year. Stronger cash flows backed by upstream volume growth and margins were the drivers of the share buyback program’s initiation.

Overall, Chevron has the highest growth expectation for 2018, above-average valuations, and rising shareholders’ returns.

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