What Makes Chevron a Buy?CVX) announced second quarter ended June 30, 2016 total revenue of $27.8 billion, down 25 percent year-over-year from $36.8 billion during the same period last year.
Chevron declared second quarter of 2016 net loss of $1.47 billion or $0.78 of loss per diluted share compared to net income of $571 million or $0.30 per diluted share in second quarter of 2015.
The global upstream and downstream energy company reported continued year-over-year decline in both its top and bottom lines primarily driven by the continuing weakness in the global commodity demand and pricing environment including, the core energy that is continuing to eat into the company’s margins.
Focusing in the right areas
Chevron is consistently reducing its total capital and exploration spending coupled with the ongoing reduction in operational and SG&A expenditures over the quarters which is in line with the company’s continued commitment to sustain a healthy balance sheet for successfully achieving long-term growth objectives while delivering attractive shareholder returns.
In addition, Chevron has uniquely achieved about 8% reduction in operating expenditures for year-till-date 2016 as against year-till-date 2015.
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At present, Chevron is focusing on optimizing its financial position by continued reduction in expenditures both core and non-core with strategic adoption of superior flexibility that depends on the existing market conditions while focusing on margin and volume expansion. The international energy company has consistently distributed year-over-year expanding dividends at a CAGR of approximately 9% from 2005 till 2015. Going forward, Chevron is focused on maintaining and growing dividends, strategically funding capital growth program for prospective earnings, sustaining a robust balance sheet while returning excess cash to shareholders in form of dividends and strategic share repurchases.
Chevron appears to be uniquely optimizing its financial position by controlling both the core and non-core capital expenditures while expanding the total cash position by continuing with its operations in core growth areas. Further, the energy mining company is keen on returning a majority of the invested capital to its stockholders in form of dividends and through well-planned share repurchase programs.
Chevron is believed to be an industry-leader in terms of excellent operational performance with impressively lower days away from work rate compared to its key competitors such as, BP p.l.c. (BP), Royal Dutch Shell plc (RDS-A)(RDS-B) and Exxon Mobil Corporation (XOM). Further, Chevron also has an industry-leading ranking in oil spills to land or water that signifies attractive operational excellence of the company.
Chevron is impressively expanding the year-over-year upstream volume at a growth rate of 0% to 4% from 2016 till 2020 by targeting to bring online certain key capital growth projects along with the planned exploration of tight and shale areas. Moving ahead, Chevron appears selectively focused on superior margin drilling areas while uniquely divesting the weaker margin barrels whereas, exploring new barrels as the growth significantly related to the global oil prices.
The impressive operational excellence of Chevron highlights the company’s strengthened basics that are believed to support the company in emerging strongly from the continuing global slowdown in consumer demand for energy and other key commodities.
Chevron is adopting a strategic asset sales program to pay-off its debt while maintaining a healthy financial position to continue with its growth operations profitably. The energy company has successfully executed $2.9 billion worth of average asset sales program from 2006 till 2015. During 2015, Chevron received $5.7 billion of total cash proceeds through the planned sales of non-core assets at Caltex Australia and Nigeria. Moving ahead, Chevron targets on achieving total proceeds in the range of $5 billion to $10 billion by strategically selling public domain assets including, Hawaii downstream, South Africa downstream, Canada downstream and Myanmar Geothermal from 2016 till 2017.
Overall, the investors are advised to “Hold” their position in Chevron Corporation considering the company’s significant long-term growth prospects but, currently weaker financial position to fund these growth initiatives with huge total debt of $45.08 billion against weaker total cash position of $9.08 billion only, restricting the company to make future growth investments. The profit margin of -0.71% is disappointing and indicate no profit but loss. However, the PEG ratio of 2.78 depicts industry-leading company growth.
Published on Sep 16, 2016By Subhen Mittra