Thursday, March 7, 2013

Chevron (CVX) 2103 Review


Chevron is the world’s fourth largest oil company based on proven reserves.  The company has grown its profits at a 15%+ annual rate over the last 10 years while earning a 15-20% return on equity.  The dividend growth rate has not kept pace with profits; but the gap in the rate of increase has been closing.  CVX prospects are bright based on:

(1) improving oil prices,

(2) it has sold most of its non core, high cost assets redeploying the proceeds in oil and gas exploration,

(3) one of the most promising development project pipeline in the industry has a number of very promising exploration projects that will grow its reserves.  They include deep water production in the Gulf of Mexico as well as fields in western Australia, Angola, Nigeria and the Gulf of Thailand.

(4) CVX is re-starting its stock buy back program.

(5) increasing focus on alternative energy sources.

Negatives:

(1)    exposure to fluctuating oil and gas prices,

(2)    its extensive international operations subjects it to currency fluctuations and political risk,

(3)    its large capital expenditure budget will increase its balance sheet leverage,

Chevron is rated A++ by Value Line, has a low 8% debt to equity ratio and its stock yields approximately 3.5%.

   Statistical Summary

                 Stock      Dividend         Payout      # Increases 
                  Yield      Growth Rate     Ratio        Since 2003

CVX           3.5%         10%              25%              10
Ind Ave       4.9             6                  27                NA

                Debt/                         EPS Down       Net        Value Line
                Equity         ROE      Since 2003      Margin       Rating

CVX           8%            21%           2                  11%            A++
Ind Ave      20              15             NA                 7              NA

     Chart

            Note:  CVX stock made good progress off its March 2009 low, quickly surpassing the downtrend off its May 2007 high (straight red line) and the November 2008 trading high (green line).  Long term, the stock is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  Short term, it is an uptrend (brown line).  The wiggly red line is the 50 day moving average.  The Dividend Growth Portfolio owns a full position in CVX.  The upper boundary of its Buy Value Range is $97; the lower boundary of its
Sell Half Range is $152.




3/13

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