Chevron’s record profit missed the mark. Here’s why.
Chevron Corp. ‘s record-busting earnings came in slightly under Wall Street expectations on Friday, sending the stock more than 4% lower and making it a top equity-market loser.
earlier Friday reported a mixed fourth quarter, beating the analyst consensus on revenue, and the stock went on to lead losses among S&P 500
energy companies. It was the second worst performer among the 30 components of the Dow Jones Industrial Average
The oil giant’s fourth-quarter net income was the highest since the second quarter of 2022. Its profit of $35.5 billion for 2022 was a record, the company said.
Chevron’s miss was mostly tied to lower refining prices, lower realized prices for oil liquids and higher corporate expenses.
In addition, all four reporting segments — domestic and international upstream, exploration and production, domestic and international downstream, and making and selling derived products — “showed a downtick in profit from the record levels achieved in the second and third quarters of 2022,” said Peter McNally, global head of sector analysts at Third Bridge.
Chevron’s biggest concern, however, might be the attention its $75 billion share buyback, announced earlier this week alongside an increase in its dividend, is attracting, McNally said.
The “massive” buyback “grabbed attention all the way across the country in Washington, D.C.,” the analyst said.
The first question during Chevron’s call with analysts after its quarterly results were reported was about the buyback and the “decision-making process for getting to that $75 billion.”
Chevron Chief Executive Mike Wirth said the decision was reached in the context of the cash-generating potential of Chevron’s portfolio, the market outlook, the strength of its balance sheet, and the fact that it doesn’t want to be authorizing a buyback program every year.
Chevron has chosen to approach share repurchasing in a “steady, consistent way,” and the buyback program is sized to be maintained through the commodity cycle at pace and in an “intentional” way, the executive said.
Citi analyst Alastair Syme questioned “how much is left” in the Chevron trade.
Investors “are being asked to pay an estimated 1.7x multiple versus its closest U.S. peer,” and more than a 2-times valuation as compared with European integrated oil companies, Syme said.
“We understand all the arguments about quality (assets, balance sheet, management), but all this feels reasonably well priced, in our view,” the analyst said, keeping the equivalent of a hold rating on the stock.
Piper Sandler analyst Ryan Todd maintained the equivalent of a buy rating on Chevron’s stock, saying that “investors may nitpick at the margins a bit, overall (record) earnings power remains impressive and sustainable.”
As is the commitment to sustained shareholder returns, as highlighted by the share-repurchase program and “6% dividend growth,” Todd said.
Rival Exxon Mobil Corp.
is slated to report fourth-quarter earnings on Tuesday before the opening bell. Analysts polled by FactSet on average expect Exxon to report adjusted earnings of $3.29 a share on revenue of $97.3 billion.
Shares of Chevron have gained 37% over the past 12 months, contrasting with a decline of nearly 8% for the benchmark S&P 500 index. The Dow industrials, among which Chevron was weakest Friday performer after Intel
have fallen 1.9% in the past year.
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