Chevron (click ticker for report: ) released a second quarter update Wednesday. The firm believes earnings will be higher than the most recently reported quarter in spite of weakness in the firm’s upstream business.
Though peers have shunned the downstream business, with Conoco (click ticker for report: ) recently spinning off Phillips 66 (PSX) and Marathon (click ticker for report: ) shedding its refiner operations, the downstream business is benefiting from lower wholesale prices, leading to higher margins. Refinery margins are up across all segments sequentially, with US Gulf Coast margins expanding over 400 basis points in the first two months of the second quarter compared to the first. The firm’s marketing margins have also been significantly stronger in both the West and East regions in the United States.
Though Chevron does not score highly on our Valuentum Buying Index (our stock-selection methodology), we think the company is undervalued on a DCF basis and makes for a very attractive dividend growth investment. The firm has a healthy track record of paying its dividend, and we think the dividend is not only safe but also likely to grow.