Earnings season is upon us and it has been a relatively mixed bag so far. However, investors in Chevron (NYSE:CVX) and CVX stock have had a particularly rough go today.
Following Chevron’s third-quarter earnings release, CVX stock is down more than 6%, hitting a fresh 52-week low. The company’s earnings missed Wall Street estimates by a rather significant margin, which appears to be the key driver of this stock’s price action right now.
Chevron reportedly earned $6.5 billion (or an adjusted EPS of $3.05), which was down considerably from last year’s $11.2 billion Q3 revenue. Importantly, Wall Street was looking for $3.75 in earnings per share, leading to a much wider-than-expected miss, forcing investors to reconsider their valuation models on the stock.
With oil prices remaining volatile, investors are clearly taking a more cautious view of Chevron today. Let’s dive a bit more into what the company reported — and what investors may want to make of these numbers.
CVX Stock Sinks Following Underwhelming Earnings
For most energy stocks, including Chevron, profitability is the key metric most investors are focused on. How much cash a given company is able to pump out (and preferably return to shareholders via dividends and share buybacks) is the key focal point. Thus, when a company misses on its bottom line as Chevron has in this report, it sends a negative signal to existing shareholders and forces many to reconsider their positions, relative to the other cash flow-producing dividend-paying options in the market.
Notably, Chevron did warn that its oil and gas production and refining businesses would see some slowdown this quarter due to scheduled maintenance. However, the extent to which earnings would be impacted by these shutdowns, as well as other geopolitical issues, led the company to miss already-lowered earnings estimates for the quarter.
I’m of the view that these numbers, while definitely off the mark, aren’t the end of the world for shareholders. The rationale for this miss (one-time events, energy prices and maintenance) is something investors can generally grasp. And if we should see a reversion toward the mean this coming quarter, I wouldn’t be surprised to see Chevron more than make up for this miss.
That said, as with all energy companies, I think we’re going to see more volatility on the horizon. Energy prices have proven to be ultra-volatile in recent weeks and I don’t see any reason for that to change moving forward. Thus, for those considering buying CVX stock at these levels, strap in for a bumpy ride.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
