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Back in July of 2010 I penned an article, "The Case for Chevron," back when Chevron (NYSE:CVX) was trading at $70.41. Although Chevron is now trading at $108.18, I still believe it is undervalued and a good defensive play to boot; albeit not as undervalued as it was back in the summer of 2010.

Overview - Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. CVX still sells at a reasonable 9 times this year's earnings and just a smidgeon over 8 times next year's consensus. Consensus earnings estimates for both this year and next have also been revised higher by over 10% during the previous ninety days, so the potential for still higher actual earnings is high given the continued high price of oil. It yields 2.9% and has a recent record of consistently raising dividends. Given its prodigious cash flow, this trend is likely to continue. I think CVX still has significant tailwinds:

  1. The recent turmoil in the Middle East is unlikely to be resolved in the near future ensuring a higher and durable floor under oil prices.
  2. Given the Mid-term elections any "Carbon" tax is dead in the water, and a rogue EPA is likely to be muzzled as well.
  3. The political environment from high gas prices is likely to accelerate new permits for offshore drilling in the near future, despite the BP spill. CVX rig count is already showing good growth.
  4. The recent rise in natural gas prices will improve profits on the margin if it continues and will make it late 2010 acquisition of Atlas look like a winner.
  5. Chevron recently upped its buyback program by 1bn a year.
  6. Given Chevron's growth prospects, continued high oil prices, reasonable valuations and decent dividend yield; CVX should be worth at least 10 times this year's consensus earnings of $12.25 or $122.50. Both S&P and Credit Suisse have higher price targets of $128 and $130 respectfully.
Source: Chevron Still Has Significant Tailwinds