A couple of years ago, oil prices soared following Russia's invasion of Ukraine, and producers capitalized on the opportunity. With profits at their peak, companies like Chevron (NYSE: CVX) used that windfall to pay down debt and reward shareholders with generous dividends and massive share buybacks.
However, the narrative for oil companies has since shifted. Since the start of 2023, Chevron's performance has been lackluster, with the stock falling 13%. Compare this to the S&P 500, which has climbed 57% over that same period.
Slowing global demand has put downward pressure on prices. On top of that, the U.S. is cranking out record amounts of oil. With Chevron facing these challenges, is it time for investors to buy, sell, or hold the stock? Let's dive in and find out.
Energy drives our economy, powering everything from cutting-edge data centers to bustling factories and vital transportation networks. At the core of this lies oil, which fuels nearly 38% of U.S. energy consumption, according to the Energy Institute.
Chevron is a powerhouse in the energy sector. At the heart of its business is exploration and production, where it extracts crude oil and natural gas from resource-rich regions like the Permian Basin using enhanced recovery techniques. This upstream operation is just one part of Chevron's integrated business.
Once extracted, Chevron transforms these raw resources into everyday essentials: gasoline, diesel, jet fuel, and lubricants. It operates refineries in California and Mississippi, and also transports, markets, and operates gas stations around the globe. These are its midstream and downstream operations, which help stabilize its volatile business.
Commodity-based businesses like Chevron face unpredictable price fluctuations, greatly affecting their profits and margins. Operating an integrated structure and balancing upstream, midstream, and downstream operations provides Chevron with multiple revenue sources that help balance the oil and gas price swings. This integrated model is why Chevron has raised its dividend payout for 37 consecutive years.
Over the past few years, Chevron has reduced its debt from $45.4 billion to $25.8 billion and implemented significant share repurchases. Its lackluster stock performance means it trades pretty cheap, at 15.6 times earnings and 1.34 times sales, both of which are below its 10-year average.
Chevron's dividend currently yields investors 4.6% and the company has a long history of growing its payout. While the stock has underperformed in recent years, its cheaper valuation makes it appealing for value-focused investors in a market of overvalued stocks.