Chevron (CVX) is slashing long-term spending as the oil industry digs in for a slow recovery. Is Chevron stock a good buy? Take a look at earnings and the CVX stock chart.
Chevron is the last oil stock on the Dow Jones Industrial Average since rival Exxon Mobil’s (XOM) ouster in late August after more than 90 years on the key index.
But while Chevron will remain a blue chip stock, Exxon’s replacement in favor of software stock Salesforce (CRM) is another signal of the energy sector’s declining prospects.
Chevron Earnings, Revenue Growth Falter
On Oct. 30, Chevron reported mixed Q3 results. The oil giant reported a 93% drop in earnings to 11 cents per share. Analysts were expecting a loss of 29 cents per share. Revenue fell 32% to $24.45 billion, under Wall Street views for $27.3 billion.
Net oil-equivalent production fell 7% to 2.83 million barrels per day. Chevron slashed its capital spending by 48% and cut operating expenses by 12%. U.S. upstream earnings plunged 84% to $116 million. International upstream profit tumbled 94% to $119 million. U.S. downstream earnings fell 64% to $141 million.
Over the last three years, Chevron earnings growth has averaged -11%, according to IBD’s Stock Checkup tool. The Dow Jones energy giant’s three-year revenue growth rate is -6%.
Investors generally should look for stocks with sustained earnings and sales growth of at least 25%.
Chevron stock also offers a 7.3% dividend yield vs. about 2% for the S&P 500. Exxon also reported mixed Q3 results. Exxon stock boasts a 10.6% dividend yield.
Chevron Stock Technical Analysis
CVX stock has come off the depths of the coronavirus stock market crash in March, according to MarketSmith chart analysis. The stock bounced around its 50-day line before breaking through on Nov. 9 as oil prices rose after Pfizer (PFE) announced encouraging Covid-19 vaccine results.
Oil prices have seen historic volatility in 2020. Coronavirus lockdowns sent oil demand and prices plunging in March. Then in April, U.S. benchmark crude turned negative for the first time amid fears that storage capacity for excess oil was running out of room.
May saw U.S. crude surge nearly 90%, marking its best month ever, as global economies began to gradually reopen.
But a sharp reversal in oil prices in June knocked Chevron stock below its 50-day average. But another surge in oil prices sent shares back above the 50-day line, and the stock is also just above its 200-day line.
Longer-term, the RS line, the blue line in the chart shown, has come off record lows but has still been trending lower since late 2011, another sign of weakness.
Despite bullish Covid-19 vaccine news, Rapidan Energy analysts don’t see a steep rally in oil prices next year, and instead estimate an average of $43-$45 per barrel in 2021. And the International Energy Agency said in a December report that the oil markets remain “fragile” with kerosene (jet fuel) weighing down demand the most in 2021.
Chevron stock has an IBD Composite Rating of 6 out of 99 and an EPS Rating of 23. The Composite Rating compiles scores on key fundamental and technical metrics: earnings and sales growth, profit margins, return on equity, and relative price performance. Investors should focus on stocks with a Composite Rating of 90 or higher.
As with other oil stocks watch, Chevron stock is heavily dependent on crude oil prices. Even when Chevron’s fundamentals and technicals show strength, if crude oil prices suddenly plunge, CVX stock will too.
Investors can look at energy exchange traded funds. These ETFs still face crude oil swings, but avoid stock-specific risk. Energy Select Sector SPDR Fund (XLE) and iShares U.S. Energy ETF (IYE) are two energy related ETFs.
On Dec. 3, Chevron slashed its long-term capital spending guidance to $14 billion-$16 billion annually through 2025 from a prior view of $19 billion-$22 billion. It joined other oil majors feeling the squeeze of lower for longer crude prices.
But the company still plans to increase investments in certain assets, such as those in the Permian Basin, other unconventional plays, and the Gulf of Mexico.
Chevron invested heavily in the Permian Basin ahead of the coronavirus pandemic and oil price collapse.
While Chevron’s offer to buy Anadarko Petroleum for $33 billion was topped by Occidental Petroleum’s (OXY) $38 billion counteroffer last year, Chevron found acquisition opportunities even amid the Covid-19 pandemic.
In July, Chevron announced it was buying oil and gas producer Noble Energy in an all-stock deal valued at $5 billion. Noble has 92,000 acres in the Delaware basin of the oil-rich Permian.
In August, Chevron was among the energy stocks that announced agreements worth up to $8 billion with the Iraqi government. The oil giant approved a framework for exclusive negotiating for an exploration, development, and production contract in a major oil field in the Dhi Qar Province.
Chevron stock also moves on broader oil news from overseas. Shares fell after OPEC+ talks in March fell apart, sparking the biggest drop in oil prices since the start of the 1991 Gulf War. But the cartel has since reached a new deal as the Covid-19 pandemic hit demand. OPEC is set to start easing supply cuts in early 2021.
While Chevron’s upstream drilling operations benefit from higher oil prices, Chevron’s downstream refining operations see smaller margins when oil prices rise. Chevron is among oil companies with Gulf Coast refining operations that require heavy crude for optimal refining capability. Sanctions on Venezuelan crude have increased input costs for refiners, squeezing margins.
So Is Chevron Stock A Buy?
Chevron stock is not in a buy zone, and no discernible pattern has emerged. The relative strength line continues to show underperformance vs. the broader market.
Both earnings and CVX stock also swing with crude oil prices, which are heavily influenced by outside forces.
Earnings and revenue have been in decline, and the outlook is murky as crude is expected to be on a long, choppy recovery.
Bottom line: Chevron stock is not a buy.
Investors looking for stocks to buy can find companies with stronger, more-consistent earnings growth and better stock technicals.
Follow Gillian Rich on Twitter @IBD_GRich for energy news and more.
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