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Why Is Chevron (CVX) Down 0.3% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Chevron (CVX). Shares have lost about 0.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Chevron due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Chevron Q1 Earnings Beat on Permian Production Strength

Chevron reported adjusted first-quarter earnings per share of $1.29, above the Zacks Consensus Estimate of 64 cents. The beat was driven by strong production from the Permian Basin and higher margins on refined products.

However, the bottom line was below the year-earlier quarter's earnings of $1.39 per share due to lower oil and natural gas price realizations.

The company generated revenue of $31.5 billion. The sales figure beat the Zacks Consensus Estimate of $29.9 billion but was down 10.5% year over year.

In view of the historic oil market crash and the coronavirus-induced demand destruction for oil, Chevron now expects to spend $14 billion for the year, compared to its previously lowered estimate of $16 billion and 30% less than its initial projection. The company is also targeting $1 billion in operating cost cuts.

Meanwhile, Chevron said that it would keep paying shareholders a quarterly dividend of $1.29. 

Segment Performance

Upstream: Chevron’s production of crude oil and natural gas increased 6.5% from the year-earlier level to a record 3,235 thousand oil-equivalent barrels per day/MBOE/d (61% liquids) – the sixth successive quarter where volumes exceeded 3 million barrels per day.

Contribution from the shale assets in the prolific Permian Basin more than offset the effects of normal field declines, and the impact of asset dispositions. The first-quarter average production from the showpiece Permian Basin was 580 MBOE/d, up 48% year over year. 

The U.S. output rose 20.4% year over year to 1,064 MBOE/d while the company’s international operations (accounting for 67% of the total) edged up 0.8% to 2,171 MBOE/d.

Despite all-time high production volumes, Chevron’s upstream segment income was down 6.5% year over year to $2.9 billion – mainly due to lower oil and gas realizations.

Downstream: Chevron’s downstream segment achieved earnings of $1.1 billion, significantly higher than the profit of $252 million last year. The surge primarily underlined a rise in refined products sales margins.

Cash Flows, Capital Expenditure

America's No. 2 energy producer recorded $4.7 billion in cash flow from operations, down from $5.1 billion a year ago. The decrease in cash flow could be attributed to falling lower price realizations in the upstream business.

In the first quarter, Chevron paid $2.4 billion in dividends.

The company spent $4.4 billion in capital and exploratory expenditures during the quarter, down from the year-ago period’s $4.7 billion. More than 88% of the total outlays pertained to upstream projects.

Balance Sheet

As of Mar 31, the San Ramon, CA-based company had $8.5 billion in cash and cash equivalents and total debt of $32.4 billion, with a debt-to-total capitalization ratio of about 18.4%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -11.34% due to these changes.

VGM Scores

At this time, Chevron has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Chevron has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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