I Would Still Keep Chevron on ‘Hold’
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Positive Earnings Output
In an interim update posted on July11 by Chevron Corporation (NYSE: CVX), the company outlined that it would be reporting second quarter earnings ahead of the previous quarter in 2012. Upstream results are expected to be lower, partially offset by foreign exchange rates, while downstream earnings are expected to be higher, on account of better refining methods. Downstream earnings are expected to include $200 million in gains from the sale of company assets.
In a regulatory filing, the company said that US net oil-equivalent production rose 14,000 barrels a day in the first two months of the second quarter, in part by increased Gulf oil production. The company also reported that international oil-equivalent production for the same first two months of Q2 fell 30,000 barrels a day due to continued shut in production in Brazil and scheduled maintenance in Kazakhstan.
The company’s own US production for that same time period was 665,000 barrels a day, a 2.1 percent gain from the first quarter but a 4.2 percent decline a year earlier.
Prices for US crude oil for that time period averaged $108.80 compared with $108.37 the previous quarter, but in line with the previous year’s price. Natural gas averaged $2.05 per thousand cubic feet, a 53 percent decline from the previous year, and a 17 percent decline from last quarter.
Following the interim update, the stock price for CVX was up 1.28 percent on the news ending that day at $104.85. The company's total shares stand at 5.93 million, with 7.01 million outstanding and 1.97 floated. The P/E ratio sat at 1.97 with revenue at $254.07 billion this past 12 months. The gross margin was at a positive 32.74 percent and the operating margin at 19.12 percent.
Rival BP (NYSE: BP) was up 1.61 percent to $40.29 a share, with 4.35 million share volume. Another major rival Exxon Mobile (NYSE: XOM) was up 1.53 percent ending at $84.38 with a 18.34 million share volume.
Banks Weigh in on News
JPMorgan Chase weighed in on the news with a new report on July 12 upgrading the stock to ‘neutral’ upon good news. Citigroup went a step further and upped its price target to $120 and pushed a ‘buy’ rating. The news was not all positive with Morgan Stanley lowering its estimated earnings per share in a recent report, maintaining an ‘overweight’ rating.
Kosmos Agreement
The company recently announced in a joint partnership with Kosmos Energy, it’s own wholly owned subsidiary, Chevron Global Energy, will be assigned offshore blocks 42 and 45. Kosmos will maintain a 50 percent stake in the working interest, and remain the operator of both blocks, Chevron will become the operator once commercial natural resources are found.
"This agreement enables us to explore for new resources in this frontier basin," said George Kirkland, vice chairman, Chevron Corporation. "These blocks are on trend with new deepwater Cretaceous discoveries in the region."
The two blocks are roughly 155 miles from Paramaribo and cover approximately 2.8 million gross acres, with water levels ranging from 650 to 8,500 feet.
Analysis
Let’s not forget that Chevron actually pays a very generous dividend that can provide a nice bottom line for investors nearing retirement. The dividend is $3.60 annually with a 3.47 percent yield with a payout ratio of 23.27 percent.
I think for the most part the news was positive and most banks responded enthusiastically with the decision. I am a bit surprised by the report given by Morgan Stanley that lowered expectations.
Still I maintain that with the company working to diversify its findings with natural gas and creating long lasting partnerships with local energy companies, the organization is set to position itself well in the event that oil prices continue to fall, and rely on other sources of revenue.
With positive dividends and a diversified revenue stream I would still keep this one on hold.
muhammadbazil owns shares of ExxonMobil. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
