Source: PaxForex Premium Analytics Portal, Fundamental Insight
Chevron continues to actively capitalize on the favorable climate in the oil and gas market. The energy giant's profit significantly exceeded analysts' expectations. This served as an additional incentive for the company's shares to rise to record levels.
Chevron's rising stock price further enriches Warren Buffett, whose Berkshire Hathaway considers the oil company its third-largest stake. Here's a closer look at the quarter and whether now is a good time to buy one of Buffett's favorite companies.
Chevron reported Q3 earnings of $11.2 billion, or $5.78 per share. That's almost double the $6.1 billion, or $3.19 per share, from a year ago. Although earnings were slightly below Chevron's all-time high in Q2 as oil prices cooled, its results far exceeded analysts' expectations.
Chevron's operating cash flow hit a record $15.3 billion this quarter, with a free cash flow of $12.3 billion.
The energy giant benefited from higher prices this quarter. Chevron sold its oil for an average of $76 a barrel in the U.S. and $89 a barrel internationally. That's up from $58 and $68 a barrel, respectively, a year ago. At the same time, the company sold natural gas for an average of $7.05 per cubic foot in the U.S. and $10.36 per cubic foot in the international market, up from $3.25 and $6.28 per cubic foot, respectively.
Chevron also had a strong performance in its international refining and distribution business, where earnings increased by more than $1 billion. The company's international refineries processed 11% more crude oil this quarter, driven by increased demand. Chevron also benefited from higher refining margins in the period.
Chevron's rising profits and cash flow allowed the company to allocate more money to shareholders. The oil giant returned $6.5 billion in cash to shareholders. It paid out $2.7 billion in dividends (up 6% from a year earlier) and repurchased $3.75 billion worth of its stock (more than 1% of shares outstanding). In addition, for the sixth quarter in a row, Chevron is paying down debt.
The energy giant also continues to invest in conventional and new energy sources. Over the past year, it has increased its capital investment by 50% to meet the growing global energy demand. These investments are generating high returns, with returns on capital invested reaching 25% in Q3. Chevron has made several notable investments recently, including approving projects to increase refining capacity in the U.S. and advancing carbon capture and storage initiatives. These and other projects allow Chevron to deliver low-carbon energy to meet global demand.
After Chevron's strong Q3 performance lifted its stock to an all-time high, investors are probably wondering if they missed the mark. On the one hand, there may be less upside potential, as the stock is already up more than 50% this year.
But skyrocketing oil and gas prices have demonstrated the need for continued investment in traditional energy sources. After years of underinvestment due to falling prices and concerns about climate change, supplies are struggling to keep up with demand. As such, prices may remain high for a long time to come. This will allow Chevron to continue to generate a lot of cash, which it can reinvest at a high yield while returning large sums to shareholders.
As such, the company's stock could continue to rise. Buffett stands by this thesis. Berkshire Hathaway continues to buy the energy giant's stock this year despite its rising share price. While Buffett's acquisitions are not a reason to buy, having his endorsement certainly sets Chevron apart as one of the best options in the sector for those looking for oil price growth.
As long as price is above 165.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 179.88
- Take Profit 1: 190.00
- Take Profit 2: 200.00
Alternative scenario:
If the level of 165.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 165.00
- Take Profit 1: 155.00
- Take Profit 2: 150.00
