Chevron (NYSE:CVX) investors are on a slippery slope and have become - seemingly - frustrated with their stock, which has hit wall over the past eight months. Since Chevron shares reached a high of $126.43 in September, shares have fallen more than 6%. And while the stock did rebound and hit a high last week of $127, shares are still down 1.3% in eight months and are up less than 1% year to date. But that's not because Chevron has forgotten how to make money.
As with several rivals, including Exxon Mobil (NYSE:XOM), Chevron, which is the world's second-largest oil company, has had a tough time with production growth. Management has done a decent job of growing where it can. And with Chevron's rich pipeline of growth projects, which - I believe - should maintain long-term higher production levels, investors looking for a solid play in energy should consider Chevron following this recent dip. First-quarter results weren't breathtaking. But there were no surprises, either.
The company reported first-quarter revenue of $53.27 billion, which fell 6.3% year-over-year. Analysts were looking for revenue of $57 billion. But last month, Chevron management had warned that production would drop year-over-year due to severe weather, which caused significant downtime in (among other areas) the U.S., Canada and Kazakhstan.
As a result, during the quarter, global oil-equivalent production fell to 2.59 million barrels per day, down 2.2% year-over-year from 2.65 million per day. The unplanned downtime and field declines were too much to overcome improved production in areas like Nigeria, Angola and the U.S. These declines, along with a 3.2% decline in U.S. oil prices, impacted revenues. This compares to last year's prices per barrel of $91. International prices fell 3% to $99 a barrel.
With persistent revenue and production headwinds, Chevron reported earnings of $4.51 billion, or $2.36 a share, down from $6.18 billion, or $3.18 a share, in the year-earlier period. Analysts were looking for earnings of $2.51 per share.
But here's the thing; it's not as if Chevron is being outperformed by its rivals. Exxon Mobil reported first-quarter revenue of $106.8 billion, which represents a year-over-year decline of 1.5%, falling below last year's revenue total of $108.4. Although a case can be made that rival ConocoPhillips (NYSE:COP), which reported a 10% jump in first quarter revenue, has outperformed, it has to be said in the context of its respective size and global positioning.
It's also true that BP (NYSE:BP) came out with better-than-expected results. This is also because expectations for BP were much lower, given the company's ongoing restructuring and costs related to the 2010 oil spill. For Chevron, the production growth issue, which is an industry-wide concern, is not going to be fixed overnight. And it certainly shouldn't be ignored that this quarter presented significant weather-related obstacles.
I'm not making any excuses for Chevron. But the company is only a few quarters removed from posting an 8% revenue decline. And with continued strength in both the upstream and downstream businesses, Chevron is poised to regain its standing among the best energy performers on the market.
Consider, despite the lower volumes, Chevron's management highlighted a number of major initiatives scheduled to come online during the next few years. These include the liquefied natural gas [LNG] project in Angola, the deepwater project in Nigeria, the Caesar/Tonga project in the deepwater Gulf of Mexico, and the Chirag development in the Caspian Sea. From my vantage point, this makes Chevron's outlook even more promising than Exxon's.
But this is where investors have to believe in management's ability to use capital wisely. These projects are not cheap. During the quarter, the company spent roughly $1 billion in capital expenses. Almost all of it (93%) went towards these projects.
And when you factor in the deepwater Gulf of Mexico projects like the Jack/St. Malo and Big Foot initiatives, which are projected for late 2014 and mid-2015 start-up, respectively, investors have plenty of reason to be encouraged that Chevron has plenty of growth opportunities ahead, which I believe will strengthen the company for the next five years.
With the stock trading at $126, I would be a buyer here on the basis of long-term growth in production and revenue and profits. And with the company having boosted its dividend by 7% to $1.07 per share, Chevron remains one of the best no-brainers on the market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by Wall Street Playbook's energy sector analyst. Wall Street Playbook is not receiving compensation for it (other than from Seeking Alpha). Wall Street Playbook has no business relationship with any company whose stock is mentioned in this article.