Chevron (CVX) Stock: Still Best-in-Class After Q1 Earnings Blowout

Chevron still compares favorably to other stocks in its sector

Chevron Corporation (NYSE:CVX) absolutely clobbered expectations as it reported first-quarter earnings on Friday. Sure, both earnings and revenue took a hit from the first quarter of 2014, but that was to be expected in a time of cratering oil prices.

Chevron CVX Stock Still Best in Class After 1Q Earnings BlowoutAlthough CVX stock is trading slightly lower after its earnings announcement, investors should have renewed confidence that Chevron remains one of the best energy plays in the stock market after this morning’s numbers.

CVX Earnings: A Blowout Quarter

With oil prices down more than 40% from their peak last year, everyone knew Chevron couldn’t match its year-ago financials. analysts were looking for revenue of $24.4 billion and earnings per share of 79 cents for CVX stock.

Analysts got what they were looking for, and much more. Revenue came in at $34.6 billion, and EPS clocked in at $1.37. Now that’s what I call a beat.

Yesterday, Exxon’s largest rival, Exxon Mobil Corporation (NYSE:XOM) also beat the living hell out of expectations, only to be rewarded by a 0.6% decline in its stock price. These market reactions to epic CVX and XOM earnings beats are, on their face, nonsensical.

Looking at them in context though, they simply tell us that analysts were setting their expectations far too low, and Wall Street never believed them to begin with.

Whatever the reason for the muted stock market response, InvestorPlace contributor Richard Saintvilus was on point when he touted the virtues of CVX stock:

“Chevron stock, which will pay you nearly 4% in dividends to wait, is one of the best ways to play the recovery. … Of the large oil majors, CVX stock is cheaply valued, trading at just 11 times trailing earnings — lower than most of its peers, and just a third of the valuation of BP.”

I wholeheartedly agree. Especially in today’s uber-low rate environment, it’s hard to find another investment quite as compelling as large-cap, diversified oil stocks like Chevron and Exxon. They’re both two of the 10 best Dow dividend stocks right now, and as far as equities go, these two are pretty low risk.

(Incidentally, that’s why I think they’re both fine stocks to go with if you’re thinking about setting up a DRIP, or dividend reinvestment plan.)

The great thing about Chevron and Exxon from the viewpoint of a conservative investor is that both companies naturally hedge; their upstream (drilling and exploration) business suffers when oil prices fall, but their downstream (refining and marketing) operations enjoy better margins. The opposite is true when oil prices rise.

In the most recent quarter, CVX earnings fell 64% year-over-year in its upstream segment, but rose more than 100% in its downstream segment. Chevron isn’t going anywhere anytime soon — but that doesn’t mean its stock price won’t be on the move.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at [email protected]

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