SHEL - Chevron: Solid As A Cap Rock But Fairly Valued For Now
2024-03-26 07:45:13 ET
Summary
- US unconventionals have become Chevron's key growth lever with volumes from the Permian and DJ basins estimated to reach ~1.9Mboed by 2028, supporting a total production expansion to ~4.1Mboed.
- Despite repeated delays and cost overruns, a 50% stake in TCO remains a key asset, reinforcing otherwise shallow oil reserves (8.7y R/P) with ~1Bboe of crude (~21% of total reserves).
- The largest upstream exposure among peers (82% vs 65% average) could make CVX a beneficiary of offensive asset flows into the sector as the mid-term Oil & Gas price outlook remains strong.
- Management has an excellent track record of shareholder returns, delivering the highest L5Y dividend growth rate among Supermajors and offering ~11% in forward yield including $18B of buybacks.
- With shares trading at fair value based on a SOTP analysis, I see limited price upside in the near term and initiate Chevron at Equal-weight with a price target of $157.
[Note: This piece will focus exclusively on standalone Chevron as it currently operates, meaning there will be no discussion of any implications the proposed acquisition of Hess Corp. ( HES ) might have on a Pro-Forma entity nor will I include any potential contributions from Hess' assets in my financial and production forecasts. All company projections are from Chevron's 2023 Investor Day , latest 10-K and Q4 24 earnings release .]
Company Overview
Chevron ( CVX ) is the second largest of the global Oil & Gas Supermajors behind US-peer Exxon Mobil ( XOM ) and ahead of European firms TotalEnergies ( TTE ), Shell ( SHEL ) and BP ( BP ) with a strong footprint across 6 continents. As an integrated major, Chevron's operations span the entire energy value chain from exploration and production of hydrocarbon resources (E&P / Upstream) to refining and marketing of fuels and petrochemicals (Downstream). In FY23 the company earned $21.4B in net profits of which ~82% were contributed by its Upstream business, giving it a significantly higher E&P exposure than prime rival Exxon (~60%) and European peers (~65%) and therefore naturally higher leverage against oil price developments....
Chevron: Solid As A Cap Rock But Fairly Valued For Now