jewhyte
Overview
Chevron (NYSE:CVX) is an integrated energy and chemicals company that operates in two segments: Upstream and Downstream. Its Upstream segment explores, develops, produces, and transports crude oil and natural gas. Its Downstream segment refines crude oil into various petroleum products.
The company is easily the best-performing stock of the DOW’s thirty components, but in this article, I will compare its performance with other stocks within the energy sector (such as Exxon Mobil (XOM), Shell plc (SHEL), ConocoPhillips (COP), BP (BP), and Marathon Petroleum (MPC)) to help determine whether it’s recent appreciation in price continues to make it a strong investment option or whether one of its competitors is a more suitable investment option based on past/future financial performance and current valuation.
Financial Performance
Next week, Chevron will release its Q3 numbers and it is expected that the company will outperform estimates as it did in Q2. In Q2, Chevron beat both earnings and revenue estimates with an earnings increase of $3.08 billion compared to Q2 of 2021. Revenue also increased significantly compared to the second quarter of 2021. Looking at the chart below, you can see that both revenue and earnings have seen steady and significant increases in the past couple of years.
Some highlights from Chevron’s Q2 results include the following:
- Return on capital employed of 26%
- Strengthening of its balance sheet as debt ratio fell below 15%
- Increased the top end of its annual share buyback guidance to $15B
While Chevron has taken advantage of a favorable environment in the energy sector it has made specific moves that will help the company sustain its recent success as the current environment changes. These moves include:
- More than doubling investment in traditional and new energy business units
- Closed its acquisition of Renewable Energy Group
- Completed the formation of a joint venture with Bunge North America
- Signed agreements to export 4 million tonnes per year of LNG out of the U.S. Golf Coast starting in 2026
Peer Comparison
To help determine Chevron’s value, I will compare its revenue growth, earnings growth, dividend yield, dividend growth, return on assets, PE ratio, and Price to Book Value with five of its competitors.
Revenue Growth
Looking at the chart below, you can see that only ConocoPhillips has seen higher revenue growth over the past three years. Shell PLC and BP PLC has actually seen a decline in revenue during this time, although they are trending up recently.
Earnings Growth
In terms of earnings growth, Chevron leads the pack in the past three years outperforming the other five stocks significantly during this time period.
Dividend Yield And Growth
Currently, Chevron has a dividend yield of 3.36%. This compares favorably with its competitors. Exxon Mobil has a nearly identical yield of 3.39%. Shell plc’s dividend is under 3%, currently sitting at 2.85%. ConocoPhillips’ yield is even lower at 1.51%. BP has the highest yield at 4.66% and Marathon Petroleum is near the bottom of the pack with a yield of 2.12%.
In terms of dividend growth, Chevron and Exxon Mobil are the only two energy sector stocks that are members of the Dividend Aristocrats (S&P 500 stocks that have 25+ years of consistent dividend increases.) Chevron’s 5-year dividend growth rate of 5.33% beats out Exxon’s 2.98% rate over the same time period. Shell and BP both have had negative dividend growth over the past five years, while ConocoPhillips and Marathon Petroleum have had the highest dividend growth over this time (11.98% and 9.41% respectively). Considering Chevron’s consistent, reliable growth along with a respectable yield makes it one of the best options in the energy sector for dividend growth/income investors.
Return On Assets
Based on the chart below, you can see that Chevron has the second-best ROA with only ConocoPhillips having a better value.
Valuation
When looking at each company’s PE ratio, Chevron appears to be the most expensively valued stock out of the six but based on the company’s price appreciation and strong financial fundamentals that seems reasonable. While the PE ratio is the highest of the bunch it is still not out of line compared to expected future earnings increases.
| Stock | PE (Forward) |
| CVX | 9.08 |
| XOM | 7.95 |
| SHEL | 4.85 |
| COP | 8.60 |
| BP | 3.68 |
| MPC | 4.55 |
Conclusion
While Chevron is by far the best-performing stock of the DOW so far this year, it is in the middle of the pack when it comes to its competitors. Looking at the chart below, you can see that Marathon Petroleum, Exxon Mobil, and ConocoPhillips have seen higher stock price appreciation YTD.
With that being said, I do believe Chevron remains a strong buy option for long-term investors. The company’s long-term strategy, strong financial fundamentals, and terrific history of dividend growth make it a great option to add to any long-term portfolio. For short-term investors, I like ConocoPhillips a bit better and think it will continue to see higher price appreciation in the short term compared to Chevron.
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