Chevron Corp (CVX, Financial) has posted a daily gain of 2.91% and a three-month gain of 6.1%. With an Earnings Per Share (EPS) of 15.77, the question arises: Is the stock modestly undervalued? This article provides a detailed valuation analysis of Chevron (CVX) to answer this question. We encourage readers to delve into the following sections for an informed evaluation.
Company Overview
Chevron Corp (CVX, Financial) is an integrated energy company with exploration, production, and refining operations worldwide. It is the second-largest oil company in the United States, producing 3.0 million barrels of oil equivalent a day. Chevron has a significant presence in North America, South America, Europe, Africa, Asia, and Australia. The company's proven reserves at the end of 2022 stood at 11.2 billion barrels of oil equivalent.
Currently, Chevron's stock price is $161.69, and its GF Value, an estimation of fair value, is $178.91. This discrepancy suggests that the stock may be modestly undervalued. To substantiate this, let's delve deeper into the company's financials and intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our valuation method, Chevron (CVX, Financial) appears to be modestly undervalued. The company's market cap is $308.40 billion, and with a stock price of $161.69 per share, the GF Value suggests that the stock might be trading below its fair value. This implies that the long-term return of Chevron's stock is likely to be higher than its business growth.
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Financial Strength
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. By looking at the cash-to-debt ratio and interest coverage, we can gauge the financial strength of a company. Chevron's cash-to-debt ratio is 0.45, which is lower than 53.55% of companies in the Oil & Gas industry. Despite this, the overall financial strength of Chevron is strong, with a rating of 8 out of 10.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Chevron has been profitable for 8 out of the past 10 years. In the past twelve months, the company reported a revenue of $214.10 billion and Earnings Per Share (EPS) of $15.77. Its operating margin is 15.91%, ranking better than 61.44% of companies in the Oil & Gas industry. Overall, the profitability of Chevron is rated 7 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Chevron's average annual revenue growth is 18.1%, ranking better than 65.73% of companies in the Oil & Gas industry. The 3-year average EBITDA growth is 22.4%, ranking better than 60.7% of companies in the Oil & Gas industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Chevron's ROIC was 11.64, while its WACC came in at 9.89.
Conclusion
In conclusion, the stock of Chevron (CVX, Financial) shows every sign of being modestly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 60.7% of companies in the Oil & Gas industry. To learn more about Chevron stock, you can check out its 30-Year Financials here.
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