Chevron Corporation (NYSE:CVX) has had an interesting two and a half years. The company’s earnings have collapsed and, as of yet, shown few signs of recovering. However, CVX stock has subsequently recovered nearly all its losses after falling nearly 50% from its peak.
Is Chevron stock performing well despite the weak oil price environment?
To be honest, not especially. The company’s most recent earnings report delivered another big miss on both earnings and revenues. However, management’s effective cost-cutting measures have encouraged investors. And the company has resolutely maintained its dividend despite a glaring lack of free cash flow. With the price of oil recovering and the worst seemingly passed, can CVX stock continue moving higher?
CVX Stock Cons
Back Near All-Time Highs: Chevron stock made its all-time peak in mid-2014 around $130 per share. Back then, crude oil traded for almost $100 per barrel. As we know, since then, the price of oil has crashed. Today’s $53 per barrel price is certainly an improvement from the lows, as oil did bottom just above $25 per barrel. However, $53 is a far cry from where oil traded prior to the crash.
Yet CVX stock seems oblivious. Yes, Chevron stock did lose half its value in 2015 and 2016. However, unlike oil, CVX didn’t stay down for long. Within a 12-month span, Chevron incredibly ripped almost all the way back to its all-time high, reaching as high as $119 per share recently. Regardless of how exactly you value CVX’s business, it’s hard to argue that Chevron stock is worth the same today as it was in 2014 with oil worth $40 per barrel less than back then.
Threat of a Dividend Cut: Chevron remains roughly a break-even operation. Prior to 2014’s oil crash, Chevron was strongly profitable, but since then, it has been hit or miss. The company currently shows a loss over the trailing 12-month period, and only modest profitability going forward.
The company’s cash flow from operations isn’t cutting it to pay for capital expenditures, to say nothing of its outsized dividend. Not surprisingly, the company has had to leverage up, dramatically, to keep the dividend going as scheduled. Between 2012 and now, long-term debt has mushroomed from $12 billion up to $40 billion. The company can keep mortgaging the future and selling off assets to keep dividend investors happy today, but sooner or later the dividend will get cut if profits don’t come back strongly.
LNG Projects Still Raising Doubts: Chevron has invested incredible amounts of money in its various LNG projects. The company’s Gorgon Australian project saw its tab run up from just $37 billion to $54 billion as the project developed. $17 billion is two years worth of CVX’s dividend obligations to shareholders; it’s not chump change. Gorgon, now completed, has faced issues once coming online with various production stoppages.
The company’s other huge Australian LNG project, Wheatstone, has also deviated from course. It has run billions of dollars over budget as well. And first production, which should have already begun, has now been delayed to mid-year. Investors are counting on these projects to yield big on Chevron’s huge investments. 2017 is the make or break year for proving the economics of these LNG plants.