Chevron (CVX) Pre-earnings Analysis
Oil / energy companies have lagged far behind the market this year as oil price volatility continues to ward off investors. Giants like Chevron suffered a period of declining revenues between Q1 of last year and Q1 of this year. Last quarter was their first quarter to finally post positive revenue growth compared to the same period last year, but net income still declined 26%.
There are two primary reasons why revenues for many oil companies have suffered, especially those who focus on consumer gasoline.
- The administration’s control over prices. It is not news to anybody that presidential administrations forcefully lower gasoline prices during election years to boost civilian confidence and earn votes. This has ravished earnings for companies like Chevron, with numbers clearly reflecting the impact.
- Chevron and other oil giants are coming out of two years where oil prices surged beyond extraordinary measures. The Russia-Ukraine war sent oil costs much higher in its initial days, which boosted revenues and profits for oil giants, but now the pain is being felt on the way down, which has led to profit taking from the highs.
The decline in Chevron has brought its price to earnings ratio to 15x, placing it on the lower end of the 15-25 range. This seems to be the common trend in energy companies this year, and it may remain the same until the election passes and oil’s volatility spikes back in Chevron’s favor. Nonetheless, this is a giant that will likely bounce back, and patient investors will get paid a dividend as they wait for that.
As far as these earnings go, Chevron is not expected to post anything special. Earnings per share are expected to fall further from last quarter’s 2.55 to 2.47, so markets are already preparing themselves for a decline.