Chevron Corporation (NYSE:CVX) is one of the top oil and gas companies and has developed a pipeline that is one of the most robust in the industry. Chevron has been executing well with various initiatives, including liquid natural gas projects in Asia. This should help drive long-term production higher, with volume growth expected to be over 20% by 2017 (see why Chevron is a good investment after earnings).
Barrels of cash. Chevron generated some $28 billion or $14.30 per share of free cash flow over the last twelve months, and its current ratio comes out to 1.6, compared to the peer average of 1.15. From a cash per share standpoint, Chevron is bars-none the leader:
Cash Per Share
The company has generated vast amounts of cash; putting this cash to work is the company's next logical step. The initiatives for the company includes using the cash to make strategic acquisitions. Other than acquisitions, its continued buyback program also shows confidence in its stock and future oil and gas commodity performance. Chevron is one of the 10 biggest cash generators of the S&P 500 (see all 10 here).
Return on Assets
Return on Equity
On a forward P/E basis, Chevron is cheaper than major peer Exxon. Chevron trades at only 9x and Exxon at 11x. The dividend yield on Chevron shares is more robust than Exxon Mobil Corporation (NYSE:XOM), 3.3% versus 2.6%, but they remain well below what other major oil and gas companies are paying. Top dividend payers and peers BP PLC (NYSE:BP), Total S.A. (NYSE:TOT) and ConocoPhillips (NYSE:COP) pay out 44% of earnings in the form of dividends, but Chevron is at only 28%. Assuming Chevron boosts its payout to be more in line with other major oil and gas companies, at around 40%, its dividend yield would be upwards of 4.5%.
Returns. Chevron's profitability is also rather robust. The trailing twelve-month EBITDA margin is 22%, in line with peers. Looking at return on assets, Chevron and Exxon are head-and-shoulders above the others. Other stocks (BP, Total and ConocoPhillips) are churning out 6% sales with their asset bases, while Chevron is 11% and Exxon 13%.
Strong balance sheet. Chevron has one of the healthiest balance sheets. The low-debt Chevron makes its balance sheet only that much stronger. Its debt-to-equity ratio comes out to 5%, compared to its peer average of 15%.
Exxon has disappointed on a number of fronts with third quarter production down 7% year-over-year. The XTO deal should keep interim pressures on the company, which is driven by weak natural gas prices, where natural gas accounted for nearly 50% of 3Q revenues. Exxon is indeed the largest publicly traded oil and gas company and has a massive production base, but this has proven to hinder growth.
BP saw its earnings and revenue in decline last quarter, and its stock remains down the most over the last three years. Total has one of the more geographically diverse oil and gas portfolios and the lowest exposure to North American markets. This gives Total a solid advantage, not to mention rewarding investors with above average dividend payments.
ConocoPhillips has weak production volume that was down 1% in 3Q. The key issue for the oil and gas company is its cash position. Management plans on keeping the dividend in place despite an operating cash flow that is below its expenses and dividend payments.
Chevron has a sound backing of hedge funds and billionaires, which include Ken Fisher, Jim Simons, Bill Miller of Legg Mason and others. Even Billionaire Ray Dalio of Bridgewater Associates added the oil and cash stock it to his portfolio during the third quarter (check out Dalio's top picks).