Energy giant Chevron just raised its dividend and announced a new stock-buyback plan. Fourth-quarter earnings and guidance could be the icing on the cake.
David Paul Morris/Bloomberg
Chevron
delighted investors late on Wednesday after announcing an increase to its dividend, and a new plan to repurchase $75 billion worth of shares. The stock was up 2.8% on Thursday.
The move to reward shareholders angered the White House, however. A spokesman criticized Chevron (ticker: CVX) for spending so much on shareholders when President Biden has been urging oil companies to drill more in order to increase supplies and force oil prices lower.
It was indicative of the challenge Chevron now faces in pleasing different constituencies, even as the company is on track to post record annual earnings when it releases fourth-quarter results on Friday. After the stock soared 53% in 2022, Chevron will have a hard time matching that performance this year.
The White House may be Chevron’s most vocal critic, but the government poses little threat to the company, particularly given that Republicans control the House of Representatives. The bigger challenge for Chevron is convincing investors that it can withstand the traditional boom-bust cycle that has plagued oil companies for decades. Buying back 22% of its market cap could lift shares, but not if Chevron is accelerating buybacks just as the oil market peaks.
Analysts expect Chevron to earn $4.33 per share on revenue of $53 billion in the fourth quarter. Both of those estimates are considerably higher than levels in the year-ago fourth quarter, but mark a decline from the latest third quarter. In 2023, Chevron’s earnings per share is set to fall to about $16 from $19 in 2022 as oil and natural-gas prices dropped from their 2022 highs.
For the stock to rise from here, Chevron will have to attract new investors willing to give the company’s stock a higher valuation. Its dividend may do the trick for some people. Chevron’s stock now yields 3.4%, better than the
S&P 500
‘s average 2% yield and the energy sector’s 3%. Chevron may also have to accelerate some of its new energy investments into areas like biofuels and hydrogen to show investors it’s ready for the energy transition.
Chevron was a clear leader among oil and gas companies early in the pandemic, because its balance sheet was healthier than nearly all its competitors. Unlike some European counterparts, Chevron didn’t have to cut its dividend. In fact, the company has raised it for 36 straight years.
But in the past year, Chevron has lagged some other companies, including its top competitor
Exxon Mobil
(XOM). Exxon is investing more heavily in oil and gas projects, as well as putting a larger portion of its capital budget toward clean energy efforts. While analysts are still generally bullish on Chevron—half of them rate the stock at Buy—their average target prices are just 4% below the company’s current price.
Chevron is investing heavily in the Permian Basin in the U.S., and expects to grow production there for years. It’s also focused overseas. Just this month, Chevron announced that it had discovered “significant” natural gas off the coast of Egypt. Chevron also produces gas off the coast of Israel.
If the company can become an even bigger supplier of natural gas at a time when Europe is looking for new sources, it could give investors another reason to buy in.
Write to Avi Salzman at avi.salzman@barrons.com
Credit: marketwatch.com