Chevron: Energy Stocks Still Showing Outperformance
When we look at stock markets, energy conglomerate Chevron (CVX, Financial) has had a fantastic run of late. Market valuations in the stock price have risen from $88.85 per share in January this year to $101.27 at the beginning of September.
This equates to a rally of 14% year to date, beating S&P500’s gains of 9% over the same period. Most of these rallies have come from positive moves in the underlying oil price, but it is important to remember that Chevron has shown strength in the fundamentals that should accompany these types of moves.
For the 2015 fiscal year, Chevron posted earnings of $4.59 billion, on revenues of $129.93 billion. The company posted a revenue growth of 21% in the second quarter (when compared to what was seen in the first quarter), though losses amounted to $1.47 billion (from $725 million previously).
Chart View: Chevron YTD
Since February this year, energy prices have seen a significant rise on better demand growth of 1.4 million barrels per day, and supply declines in various parts of the globe. Crude prices have risen by almost 30% this year, and from the lows of February, it has risen almost 85%. This is now seen supporting stock prices in CVX even after reporting losses in the first and second quarter of this year.
Crude oil prices moved higher after February this year because supply outages in several geographical regions were caused by geopolitical concerns, wildfires in Canada, reduced oil production by the United States, and increased demand from emerging economies. These rallies in oil prices this year have helped Chevron stock to move higher as forex investors look at the company's asset base more favorably.
Stock Upgrades in CVX
Near the end of fiscal year 2015, Macquarie upgraded the stock to a buy, and then in March of this year, Goldman upgraded Chevron from sell to neutral. Other positive examples could be seen inPiper Jaffray, which upgraded the stock investments from neutral to overweight in August 2016. The regular upgrades from prominent names have also helped the stock to continue its upward journey even after posting earlier losses.
According to the U.S. Energy Department, United States oil production is likely to fall, ranging from 8.1 million barrels per day from the 8.7 million barrels per day seen previously. Because of this, crude prices are expected to stay at an elevated level throughout the remainder of this year, supporting the stock price for blue chip energy companies. Additionally, out of total analysts polled by Yahoo finance, 80% recommend CVX stock as either a buy or a hold. These analysts also expect the stock to reach an average level of $110.75 by year’s end, signifying a potential rise of 9% in coming months.
Disclosure: The author has no position in any asset mentioned.
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