Chevron Corporation (NYSE:CVX) is moving back into full swing. CVX stock has risen 20% since July and the company’s prospects have brightened considerably with the steady rise in crude oil prices.
And as Chevron moves towards its all-time high, higher oil prices and increased earnings will likely push Chevron stock well above record highs.
Like many of its peers in the oil industry, the 2014-16 downturn in oil hit Chevron’s interests hard. Profits had been falling since 2012 when the company’s earnings-per-share (EPS) stood at $13.32 per share. Increasing production costs hit its profits even as prices peaked in 2014. But a complete collapse in profits came only when oil prices collapsed as well. In 2016, the company reported a loss of 27-cents-per-share.
Now both earnings and revenue have seen a rebound. Analysts expect the company to report an annual profit of $4.35-per-share for 2017. By 2020, they expect the company to earn $8.58-per-share, nearly double the 2017 level. Revenue has followed the same pattern as it also has rebounded. After falling to a multi-year low of $114.47 billion in 2016, revenue is expected to rebound to over $139 billion in 2018, and higher in 2019.
More earnings and revenue have also benefited CVX stock. Now, it stands just marginally below the all-time high set at the height of the last oil boom in 2014.
More Growth for Chevron Stock Ahead?
And if one goes by industry averages, the present financial metrics indicate that a lot of room for growth remains. The current price-to-earnings (P/E) ratio stands at about 37 times earnings. And this just takes into account the present value.
If the 2020 profit and the 37 P/E ratio were to hold, this would place the Chevron stock price at almost $320-per-share in less than three years. The stock currently trades at just under $130-per-share.
However, Chevron stock held up well compared to its peers. This is despite losing over 40% of its value between the middle of 2014 and early 2016. Of the major oil companies, only archrival Exxon Mobil Corporation (NYSE:XOM) saw less of a percentage drop. ConocoPhillips (NYSE:COP) and BP plc (ADR) (NYSE:BP) lost more than half of its value. Chesapeake Energy Corporation (NYSE:CHK) fell into the low single digits from a high of over $30-per-share.
Moreover, investors will be paid well while they wait for the increased share values. The company paid $4.32-per-share in dividends in 2017, a yield of about 3.45%. That value will likely keep going higher as Chevron stock, like Exxon Mobil, is a so-called “dividend aristocrat.”
A stock is considered a dividend aristocrat when the dividend increases every year for 25 or more years. Interestingly, the dividend yield on XOM stock remains about the same as the one on CVX. However, XOM trades at 28-times-earnings compared to 37 for CVX.
Final Thoughts on Chevron Stock
With rising oil prices and earnings, conditions are ripe for Chevron stock to surpass its current all-time highs significantly. Like most oil and gas companies, Chevron stock and its profits took a hard hit in the most recent oil price slump.
Now, crude oil consistently trades above $60-per-barrel. As a result, Chevron’s earnings and prospects for its stock have significantly improved. If predictions of a doubling of earnings over the next three years hold, the stock could greatly surpass its current all-time highs. And with a relatively high dividend that’s expected to increase every year, the company pays its investors well to wait.
Given the recovery of financial metrics, CVX stock now produces returns that investors should not ignore.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.