Chevron's (CVX) stock has lost almost 10% of its value in the past 30 days. There are several reasons for this decline, but Chevron is still a strong stock that should be in many portfolios.
The company recently announced earnings of $5.3 billion for the third quarter of 2012. This is a decline of $2.5 billion compared with the third quarter of 2011. Still, the company posted of earnings of almost $2.70 a share, and this is on the hills of earnings of $3.66 a share for the second quarter of 2012. The company has seen a slight decline in oil production and has been hurt by declining prices. The oil and gas giant is trading around $107 per share and has a market capitalization of almost $210 billion.
While earnings are down from last year, it must be remembered that Chevron saw record earnings during 2011. A good deal of the decline can be attributed to lower oil prices - the price of oil was down roughly $6 per barrel versus the third quarter of 2011. The company is seeing significant cost decreases which have helped the margins. Costs declined over $3 billion from third quarter last year and have declined over $9 billion for the year. This is a good sign for the company going forward. While the company is seeing a decline of earnings per share, it still compares favorably to its peers. BP (BP) is seeing EPS of less than $1.90, Exxon Mobil (XOM) is less than $2.40 and ConocoPhilips (COP) is under $2.10, while Chevron is seeing an EPS around $3.05 for the year.
Chevron currently trades at less than nine times earnings, even with the decline in earnings for the third quarter this is still a good figure for the company and compares favorably with its peers. BP is trading around 7.5, ConocoPhilips around 7, Exxon Mobil at well over 9, and Total SA (TOT) at just under 8. BP is obviously still dealing with poor sentiment from consumers and investors as a result of the Deepwater Horizon disaster, but it too is seeing lower revenue and earnings. While it does have a higher dividend yield than Chevron -5% compared to 3.3% - Chevron's reputation more than makes up for that difference going forward for investors. While Total is seeing revenue growth it is really hurting when it comes to earnings, seeing declines of close to 50% compared to last year. While it has a high dividend yield, I wonder if they will continue to be able to continue such a high yield going forward as their bottom line continues to take a hit. While Chevron's dividend yield might not look so attractive compared to these two companies, there is little doubt that Chevron can continue with its yield, while there is some question whether the other two can do so.
Chevron has been busy developing projects that will pay off with increased revenues and earnings into the future. First, the company is continuing to buy acreage in the U.S. Production is a key element of growth for an oil and gas company. The company will be increasing production in the Gulf of Mexico as the year progresses. This will provide an immediate boost to production and the company will see increased revenue because of it. It also continues to acquire land in New Mexico, in the Delaware Basin, which will add production capabilities for the long-term. The company was also recently awarded two deepwater production blocks in Sierra Leone. These deepwater blocks will add to production both in the short-term and long-term, providing further evidence that Chevron's earnings are strong going deep into the future.
More promising news for the company comes from its ability as a top notch exploration company. Chevron has achieved tremendous drilling success in recent years, most recently in Australia where it has successfully drilled for natural gas reserves offshore. This is also an example of how the company is developing into a leading supplier of energy for Asia and the Pacific Basin.
Chevron has a strong balance sheet which will play a very important role going forward. There is a good chance that oil prices will continue to decline in the next few months as concerns about the fiscal cliff in the United States grows stronger and worries about Europe linger all slowing the world economy. With over $21 billion in cash and less than $11 billion in debt, Chevron is well positioned to whether any oil price decline. It is also positioned to be able to not only withstand, but thrive, in any potential economic slowdown. Its holdings are much diversified and have operations supplying energy to developing companies like China and India - where growth is averaging in the double digits. For example, Chevron has been operating deepwater blocks in the South China sea for a couple of years now - supplying energy to China. The company is also expanding natural gas production in China and will begin to see revenue and profits sometime later this year. This geographical diversification is a strong suit for the company and will help it see very bright days in the next year.
Chevron is a value at just above $106 a share. The earnings declines it has experienced this year are a blessing for the investor looking for value. While earnings have declined, they are still very strong for the company and will only get stronger going into 2013. Chevron is a top leader in exploration and this will pay off with its recent successes with natural gas exploration in Asia and the Pacific Rim. There is no reason why this stock cannot see $140 or even $150 in 2013.