Chevron Analysis:
Energy companies enjoyed a massive revenue increase in 2021 and 2022 following the end of the lockdown restrictions and the jump in oil prices amidst the Ukraine/Russia war.
Stocks like Chevron gained more than 100% in those years as investors poured into the company, but have struggled to gain any traction in the past two years. During its rally in 21-22, Chevron’s revenue grew by 65% and 51% respectively, reflecting directly in their stock as it rallied to a new all time high; then the struggles came as soon as they began reporting a decline in revenue Q1 of 2023. The losing streak last from Q1 23 to Q1 24, but Chevron reversed that trend in Q2 of this year when they posted 5.3% growth; however the volatility in the oil market still took a toll on Chevron’s net income, which saw a 26% decline in the same quarter. So the mixed results of growing revenue, but falling profits. This provided investors a glimmer of hope, but it wasn’t yet enough to fully restore confidence.
Being an election year, 2024 was foreseen to be a struggle for American oil companies because of the political implications around energy prices. The political influence to tame gas prices reflects directly in earnings from energy companies, but as this year passes, we expect them to reverse the trend and attract buyers once again. The situation in Ukraine / Russia is still impacting the energy markets, and rising tensions in the Middle East are only adding more pressure.
Political landscape and threats:
With the Democrats in office, oil companies face the risk of higher taxes and more hurdles to jump. If Democrats get re-elected then companies like Chevron will still face challenges from the political leaders, so investors who consider this stock should have a long timeline on their position. The volatility of the oil market has swung this stock from very low prices to high prices, so this should be considered.
Three financial statements:
We’ve already talked about Chevron’s revenue trends and net income, which came in at $197 billion and $21 billion last year, so let’s move on to their balance sheet. The company has a whopping $261 billion in assets compared to $99 billion in liabilities, giving them a solid rating on the ratio. Free cash flow grew significantly thanks to their all-star year in 2022, which doubled their cash at hand, bringing the total $21 billion. Free cash flow is important to consider when buying a company like Chevron because they’re in a volatile industry and because they pay a dividend. The industry volatility requires them to keep cash at hand so they can withstand hard times and take opportunities when oil prices shift in their favor. High free cash flow also increases the chances of a dividend increase, which satisfies investors awaiting the stock to come around.