Bear of the Day: Chevron (CVX)

Chevron (CVX) reported a Q1 2025 earnings beat of $2.18 per share, $0.03 above consensus, with production relatively flat due to asset sales offsetting gains in key regions. Despite returning $6.9 billion to shareholders through buybacks and dividends (yielding 4.9%), analysts are bearish, projecting a 31.6% earnings decline in 2025 to $6.87, marking the third consecutive year of falling earnings; the company's high P/E ratio of 20.4 suggests the stock is not currently undervalued.

Analysis

Chevron Corporation (CVX) reported first-quarter 2025 earnings of $2.18 per share, narrowly beating the Zacks Consensus Estimate by $0.03, despite an environment of depressed crude oil prices. Worldwide production remained relatively flat year-over-year, as growth in key areas such as TCO (20%), the Permian Basin (12%), and the Gulf of America (7%) was largely offset by the impact of asset sales. Capital expenditure was lower than the prior year, primarily due to reduced downstream spending, which more than compensated for inorganic investments in power solutions for U.S. data centers. The company is actively pursuing new business opportunities in renewable fuels, carbon capture, hydrogen, and power generation for data centers, and awaits the conclusion of its Hess Corp. acquisition, having acquired 4.99% of Hess common stock. Despite these developments and returning $6.9 billion to shareholders in Q1 (including $3 billion in dividends, yielding 4.9%), the outlook remains challenging. Chevron faces its third consecutive year of projected earnings decline, with 2025 earnings per share expected to fall by 31.6% to $6.87 from $10.05 in the previous year, following declines of 30.3% in 2023 and 23.5% in 2024. Analyst sentiment reflects this, with the Zacks Consensus Estimate for 2025 earnings revised downwards from $7.38 to $6.87, and the stock carrying a Zacks Rank #5 (Strong Sell). Valuation also presents a concern; despite a 4.4% year-to-date share price decline, CVX trades at a price-to-earnings (P/E) ratio of 20.4, significantly above the typical value threshold of under 15, suggesting the stock is not currently undervalued relative to its earnings.

Key Decisions for Investors

• Investors should exercise significant caution given the strong sell rating, projected third consecutive year of substantial earnings decline, and a high P/E ratio of 20.4, which indicates the stock may be overvalued despite its recent price dip.
• While the 4.9% dividend yield is attractive for income-seeking investors, this should be carefully weighed against the risk of capital depreciation stemming from continued earnings pressure and the prevailing bearish analyst sentiment.
• Consider remaining on the sidelines until there is a clear catalyst for an earnings turnaround, such as a significant recovery in oil and natural gas prices, positive resolution and integration of the Hess Corp. acquisition, or evidence that shares have become more attractively valued.