Crude prices are a long way from reaching the top. Apart from there being a reliance on oil as natural gas and other energy source reserves have thinned, oil's reserves are a long way from being adequately facilitated.
Associated gas crude reserves (a petroleum composite) are ticking up marginally with production increasing. But the problem persists: we're headed into seasonal demand for heating oil and reopening demand for jet fuel.
I personally don't see prices slowing down anytime soon, whether it's light, medium or heavy oil.
Chevron has returned to profitability after a miserable 2020. The company's net income now stands at $3.58 billion versus a loss of $5.54 billion at this time last year.
As a consequence of the recovery in income, Chevron's diluted earnings per share now trade at a desirable $1.87 versus a loss of $4 a year ago. The EPS is negatively correlated to the stock price, whereas it used to be positively correlated; I expect the value gap to be filled soon.
Chevron's enterprise value/sales and price-book ratios are trading below their sector averages by 30.78% and 13.13%.
If we had to set a fair value price target based on the stock's price-earnings multiple and its free cash flow, it could reach the $321 handle within the next 12 months.
However, this is realistically not possible due to the fact the stock pays out a large number of its earnings in dividends. Chevron has a dividend yield of 4.97%, with a payout ratio of 76.68%.
There's plenty of capacity remaining as the cash payout ratio is currently below its five-year average by 36.36%, while its net income margin is 18.34% above its five-year average.
Chevron's stock has justifiably done well recently, and I anticipate further gains along with the rise in oil prices. The company's earnings per share and stock price value gap also means it has much to gain before investors should cash out their profits.