______________________________________________________________________________________________________________________________

Wed. Aug. 20, 2008

Stock Analysis: Chevron Corporation (CVX) *

Linked here is a PDF copy of my detailed analysis of Chevron Corporation (CVX) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: Chevron Corporation (formerly ChevronTexaco) is a global integrated oil company that has interests in exploration, production, refining and marketing, and petrochemicals.

Fair Value: I consider 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.), 3.) and 4.) above. If I exclude the high and low valuation and average the remaining two, CVX is trading at a slight discount. CVX earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.

CVX earned one Star in this section for 3.) above. CVX has paid a cash dividend to shareholders every year since 1912 and has increased its dividend payments for 21 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)? 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

CVX earned no Stars in this section. The NPV MMA Diff. of the $1,082 is below the $7,500 minimum I look for in a stock that has increased dividends as long as CVX has. If CVX grows its dividend at 7.5% per year, it will take 11 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%. The 11 years is more than the 10 years maximum I like to see.

Other: CVX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The oil and gas industry in which CVX operates is both cyclical and capital-intensive. CVX’s diversified and strong business profile help to partially mitigate this environment. The 2001 Texaco merger has helped improve CVX’s returns and earnings stability. CVX’s three-year (2004-2006) reserve replacement rate was good but below the peer average while associated costs were above the peer average..

Conclusion: CVX earned one Star 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 net total of two Stars. This quantitatively ranks CVX as a 2 Star-Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $57.57 before CVX’s NPV MMA Diff. increases to the $7,500 NPV MMA Diff. I like to see. At that price CVX would yield 4.39%. From a value standpoint, CVX maybe worth a second look. It closed on 8/15/2008 below its Graham Number.

As a potential dividend investment, CVX shows much more promise than Exxon (XOM). While XOM is an Aristocrat and thus has a lower NPV MMA Diff. target, XOM’s calculated value is negative. CVX will need to increase dividends for 4 more years before it is eligible to be become an Aristocrat.

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.

Full Disclosure: At the time of this writing, I had no position in CVX (0.0% of my Income Portfolio).

What are your thoughts on CVX?

Recent Stock Analyses:


Comments are closed.