Linked here is a detailed quantitative analysis of Chevron Corporation (NYSE:CVX). Below are some highlights from the above linked analysis:
Company Description: Chevron Corporation is a global integrated oil company (formerly ChevronTexaco) with interests in exploration, production, refining and marketing, and petrochemicals.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
CVX is trading at a discount to 2.) and 4.) above. The stock is trading at a slight premium to its calculated fair value of $93.59. CVX did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
CVX earned one Star in this section for 2.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1912 and has increased its dividend payments for 24 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $677 is below the $1,100 target I look for in a stock that has increased dividends as long as CVX has. If CVX grows its dividend at 7.3% per year, it will take 5 years to equal a MMA yielding an estimated 20-year average rate of 4.1%.
Memberships and Peers: CVX is a member of the S&P 500 a member of the Broad Dividend Achievers™ Index. The company's peer group includes: BP plc (NYSE:BP) with a 1.9% yield, Exxon Mobil Corporation (NYSE:XOM) with a 2.4% yield and ConocoPhillips (NYSE:COP) with a 3.7% yield.
Conclusion: CVX did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks CVX as a 1 Star-Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $84.01 before CVX's NPV MMA Differential increased to the $1,100 minimum that I look for in a stock with 24 years of consecutive dividend increases. At that price the stock would yield 3.64%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,100 NPV MMA Differential, the calculated rate is 8.7%. This dividend growth rate is slightly above the 7.3% used in this analysis, thus providing no margin of safety. CVX has a risk rating of 1.25 which classifies it as a Low risk stock.
CVX is reducing its refining footprint and focusing on large, long-lived upstream projects with higher margins and growth potential. The company is finding it increasingly difficult to expand production and add reserves. The remaining pools of cheap, easily accessible resources large enough to interest the larger players reside in the hands of governments and national oil companies. This has forced CVX to focus on deepwater exploration. The company hopes to begin drilling at three deepwater prospects in 2011.
The company's financials are generally good. Several metrics are just outside my desired range. Though its free cash flow payout is below my 60% maximum, CVX had one year of negative free cash flow during the last 10 which prevents it from earning a star. Also, it is trading at a slight premium to my $93.59 calculated fair value. For now, I plan to wait on a slightly better entry point.
Disclosure: At the time of this writing, I was long in CVX (1.1% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.