Chevron Corporation Stock Forecast 2023

Chevron Corporation is a major energy producer whose business operations are largely tied to oil and gas. The company was established in the 1800s as Pacific Coast Oil, which was later acquired by oil producing giant Standard Oil Co. & Trust. Later it was separated from Standard Oil and became its own entity. 

However, it wasn’t until the 1980s that it purchased Gulf Corp and became Chevron. It’s an acquisitive company that also combined with Texaco, at which time its name became Chevron Texaco. When it scooped up another company called Unocal, Texaco was removed from Chevron’s name. 

Chevron produces enough oil to power 10 million vehicles and enough natural gas to provide electricity to 12 million homes. It is a leading energy provider in North America, where it harnesses crude oil and natural gas from the Gulf of Mexico as well as from fields in Texas, Colorado, California and Alberta, Canada. 

Chevron, with a market cap of $311 billion, has the distinction of being one of the biggest oil producers in its home state of California, where it owns thousands of wells and runs leading oil refineries in El Segundo and Richmond. It is a major oil and gas driller in the popular Permian Basin in Texas, where it owns millions of acres.  

Chevron is active in the global liquid natural gas (LNG) market, where it has a foothold in Western Australia, Angola and Equatorial Guinea as well as the U.S. and Eastern Mediterranean as a distributor. 

These days Chevron is looking to change its image amid a push toward renewable sources of energy. It has committed to a low-carbon future and has earmarked $10 billion toward this initiative. Nevertheless, oil and gas production remains the company’s bread and butter.

This article will explore Chevron’s stock, listed on the NYSE as CVX. By providing a stock forecast, individuals can determine if this asset can help achieve their goals, whether short or long-term.

Stock Forecast for 2023

Chevron Corp has 23 analysts offering price forecasts for the next 12 months. The median target is $191.00, with a high estimate of $215.00 and a low estimate of $161.00. The median price target scenario indicates a potential increase of 13.49% from April 10, 2023’s closing price of $168.30. Meanwhile, the high target represents an increase of 27.7% from $168.30, while the low represents a -4.3% downside.

Chevron is a dividend-paying stock and pays a quarterly dividend of $1.51 per share for an annual dividend yield of 3.75%.  

A risk to Chevron stock is the company’s exposure to Kazakhstan given its dependence on a pipeline located in the Black Sea in Russia. Considering Russia’s ongoing invasion of Ukraine, this could potentially be a source of weakness in Chevron stock in 2023, especially in light of the uncertainty around the war. 

In early 2023, Bank of America analysts downgraded  the stock to neutral and described it as a “victim of its own success.” The analysts don’t expect a material jump in Chevron’s free cash flow, which the company uses for buybacks and to pay dividends, placing a “cap” on the stock’s value.

On the plus side, demand for oil and gas is only getting stronger as a result of that war, particularly in Europe. Oil prices are escalated, and this is benefiting major energy corporations like Chevron.

Balance Sheet Health

Chevron’s balance sheet is in pretty good health, as evidenced by its record profits of $36.5 billion in 2022 fueled by soaring oil and gas prices more than increased oil production. The oil price rose as high as $123.5 billion in mid-2022 as a result of the Russia/Ukraine war. However, not every year is a good one for the oil and gas industry, and sometimes companies lose billions of dollars. 

Chevron is also growing its revenue hand over fist, reporting more than a 50% jump in 2022 revenue to $246 billion. The company’s free cash flow reached a fresh all-time high of $37.6 billion last year. In fact, the company felt so good about its cash flow that it increased its dividend by 6% and announced a $75 billion stock buyback program, which can be a bullish catalyst.

Chevron, however, isn’t likely to generate that type of cash flow every year. Energy prices were in a bullish cycle in 2022, an environment in which energy companies like Chevron thrive. But oil and gas prices also go through downturns, which is one of the risks for the energy sector. Having said that, Chevron aims for 10% growth in free cash flow each year. 

Chevron prioritizes repaying debt. It carries about $23.3 billion of debt on its balance sheet as of last year compared with $31 billion in 2021. With billions in cash reserves, its net debt ratio is 3.3% compare with 15.6% at year-end 2021.

Competitive Landscape

With a market cap in the hundreds of billions of dollars, Chevron competes with other major oil firm like Exxon Mobil. One of its key competitive advantages for Chevron is the type of assets it owns in the Permian Basin in Texas, where three-quarters of its holdings involve zero or low royalty payments.

Of all the markets that Chevron competes in, its petroleum refining business has the highest market share at 15.1% based on revenue generated by the industry. 

The company’s history of executive leadership is another advantage. In early 2023, Chevron’s board explored the possibility of increasing its mandatory CEO retirement age of 65 so the current boss, Michael Wirth, could remain at the helm longer. Wirth has been employed by the company since the early 1980s.

In addition to other energy companies, Chevron also competes with other dividend-paying stocks. Billionaire investor Warren Buffett holds Chevron in his portfolio and owns more than $31 billion in CVX shares.

Growth Prospects and Potential Challenges for 2023

Chevron’s growth prospects in 2023 include a capex plan of $14 billion, more than a 30% increase vs. 2022 amid more robust activity and higher costs. This includes more than $4 billion for Permian Basin development. Chevron is looking to wind down its spending in Kazakhstan, potentially reducing its risk to the Russia conflict. 

Oil prices are forecast to average around $85 in 2023 and have not been as strong as last year. A weaker oil price could reflect in Chevron’s financial results in the first quarter of the year.

Among the challenges for Chevron in 2023 is the industry’s transition toward renewable sources of energy, such as solar and wind power. Fossil fuel companies like Chevron have come under scrutiny amid the rise of ESG strategies, especially with the addition of the Inflation Reduction Act.

The U.S. legislation incentivizes business to pursue sustainable practices. While Chevron is looking to reduce its carbon footprint, the fact that the energy industry is the largest contributor of carbon emissions works against its image. 

Industry Comparison

Chevron’s stock had a price-to-earnings (PE) ratio of 8.9 at the end of Q1 2023, down from 14 in July 2022. By way of comparison, industry peer Exxon Mobil had a PE ratio of 8.2 at the end of Q1 2023 compared with 14 in July 2022. This is about average for the energy industry during this period.

Both Chevron and Exxon Mobil have a history of increasing their dividends. But Chevron’s dividend yield is slightly higher than Exxon Mobil’s, at 3.7% vs. 3.3%, respectively. However, based on their historical distributions, both Chevron and ExxonMobil, the dividend yields for both companies is lower than usual, which could signal potential overvaluation.

Chevron’s stock is slightly lagging behind the broader market. Year-to-date, Chevron’s stock is down roughly -5.41%, and as of April 10, 2023, trades -11.27% below its 52-week high of $189.68. Meanwhile, the S&P 500 index is up over 7% year-to-date.

Conclusion

Chevron is one of the largest oil and gas companies in the world with one of the richest histories. It has evolved over the years and continues to do so, most recently with its push toward a low-carbon future. 

Chevron is looking to transform itself amid the shift from fossil fuels to renewable energy, but its core business continues to be oil and gas production. 

Wall Street analysts are mostly bullish on Chevron’s stock in 2023. The one wildcard is the oil price, which is volatile and has not been trading as high as last year. Chevron reported record profits in 2022 but there is no guarantee that it will repeat this performance in 2023. 

Chevron has some competitive advantages over its industry peers, including its valuable assets in the Permian Basin, most of which require no royalty payments to others.

One of the bright spots of Chevron is its consistent dividend, which it recently raised. Chevron also announced an aggressive stock buyback program with its cash flow, which could be a bullish catalyst.

Chevron is one of billionaire Warren Buffett’s favorite assets, who holds billions of dollars worth of shares. Moreover, observing the tone of Chevron executives during earnings calls could provide insight into their projections for the rest of the year.

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