Chevron Stock Recovers in June, Valuation Stays Tall

Chevron’s valuation

In the second quarter, Chevron (CVX) stock has risen 1% due to a 10% recovery in June. The company’s peers have put up a mixed performance in the second quarter. Chevron stock continues to trade above the peer average.

Chevron trades at a forward PE ratio of 15.8x, which is above the peer average of 12.8x. ExxonMobil (XOM), PetroChina (PTR), and YPF (YPF) also trade above the peers average forward PE ratio at 17.4x, 13.9x, and 15.6x, respectively. Royal Dutch Shell (RDS.A), BP (BP), Total (TOT), and Suncor Energy (SU) trade under the average at 10.9x, 11.4x, 8.9x, and 12.3x, respectively.

Chevron trades at a forward EV-to-EBITDA multiple of 6.3x, which is above the peer average of 4.9x.

Chevron Stock Recovers in June, Valuation Stays Tall

Premium over peer averages

Chevron posted lower earnings in the first quarter. However, the company continued to strengthen its financials and boost future growth. Chevron’s cash flow didn’t cover its capex and dividends. The shortfall was smaller compared to the company’s peers. Chevron’s debt position was second best among its peers.

In the second quarter, Chevron continued its capex activities to create a sustainable long-term growth portfolio. The company has strong upstream assets, which should drive its volumes growth. Chevron’s upstream projects at Gorgon, Wheatstone, and the Permian have been ramping up and adding to the company’s output. Chevron’s volumes grew 7% in the first quarter. The company’s volumes are expected to rise 4%–7% in 2019.

Chevron’s advantaged downstream portfolio supports its integrated earnings model. The company has successfully built an integrated earnings model that can maintain its total earnings in a volatile oil price environment.

The premium that markets accord to Chevron is likely due to its financial strength, growing portfolios, and integrated earnings model.