TOT

Chevron: Cash Flow and Dividends Are Inextricably Linked

by

We think it’s worth reviewing case studies at times to help members build a greater understanding of and an increased conviction in the products, tools, and proprietary analysis we make available to them. In the case of Chevron (CVX), the efficacy of the Dividend Cushion ratio in helping to predict a company’s future dividend policy was undeniable. The Dividend Cushion ratio is calculated for every non-financial operating company in our coverage universe and can be found in the data strip at the top of each firm’s Dividend Report. A ratio above 1.25 is generally viewed as GOOD. For new members, Chevron had been a holding in the Dividend Growth portfolio since its inception. However, the company was removed from the … Read more

Are the Oil & Gas Markets Doomed?

by

Q: Are the oil and gas markets doomed? Valuentum’s Brian Nelson: In short, no. For one, if we thought the oil and gas space (XLE) were doomed, we would not be holding onto Chevron (CVX), Kinder Morgan (KMI), and Energy Transfer Partners (ETP) in the Dividend Growth portfolio. Instead, I think what we are witnessing in the oil and gas market is a flight to quality and balance-sheet strength. Our outlook for oil and gas equities has not changed before or after the recent fall in energy prices. Valuentum’s thesis accepts the fact that crude oil (USO) and natural gas prices will be extremely volatile, and that’s why we’ve gravitated toward firms such as Chevron, which has the strongest balance … Read more

Look Out Below: Crude Oil Prices Continue to Tumble

by

West Texas Intermediate crude oil (Dec’14) fell under $75 per barrel today, now almost $30 lower than its 52-week high, reaching the lowest level since September 2010. Brent crude also fell to a four-year low. We view the move in crude as a net-negative for the economy and S&P 500 earnings, even though many from transportation to retail will benefit from lower energy costs. The energy sector accounts for roughly 10% of the S&P 500 (SPY), and ExxonMobil (XOM) and Chevron (CVX) top the index’s top 10 holdings.  We think falling crude oil prices are more a reflection of expectations for declining global economic activity, which in itself, signals that trouble is on the horizon. North American shale production continues … Read more

Valuentum Economic Castleâ„¢ Rating Update

by

Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Why We’re Keeping Chevron As Our Favorite Dividend Growth Idea in Big Oil

by

Our dividend growth thesis on Chevron (CVX) has been rather simple at the core: For investors seeking dividend growth exposure to Big Oil, Chevron hands-down has the most financial flexibility of all the majors – irrespective of what happens to energy prices – and therefore, we think the firm is extremely well-positioned among its peer group to have the best dividend growth prospects through the course of the multi-year (and inevitably volatile) energy price cycle. A look at a breakdown among the net cash positions across the energy majors in the third quarter of last year, for example, shows Chevron with a net-neutral net cash position, while its peers BP (BP), Exxon (XOM), ConocoPhillips (COP) and Shell (RDS) all revealed … Read more

Chevron’s Balance Sheet Slowly Losing Luster

by

Energy giant Chevron (CVX) posted lackluster fourth-quarter results Friday. Though we were largely expecting the results (given the preannouncement earlier this month), we were quite disappointed with the performance of the company’s balance sheet, as the firm has now swung from a net cash position to a net debt position. Part of the reason we hold Chevron in the portfolio of the Dividend Growth Newsletter originates from its pristine balance sheet, which we view as a necessity for us to hold onto a commodity-producing entity through the course of the economic cycle (especially for dividend growth). However, we can’t really say Chevron’s balance sheet is pristine anymore, as its $16.2 billion in cash at the end of 2013 now falls … Read more

Chevron Releases Fourth Quarter Update

by

The fundamentals of a commodity-producing business are cutthroat. Not only are the prices of the relevant commodity extremely volatile, but a focus on the cost structure associated with extracting and producing the commodity is first and foremost on executives’ minds. Excessive financial leverage (a hefty debt load) doesn’t mix well with the uncertainty of a commodity-producing company’s operations, increasing the risk of financial distress during the depths of the economic and/or commodity pricing cycle. The latter consideration is why we prefer Chevron (CVX) as one of our top dividend growth ideas in the energy sector; unlike its major energy peers, the company has negligible net debt, offering significant financial flexibility to scoop up undervalued assets or to advance its lofty dividend. … Read more

Surveying 3Q Results at the Energy Majors

by

Performance was far from rosy across the majors during the calendar third quarter. BP’s (BP) performance showed a 26% fall in underlying replacement cost profit, Exxon Mobil’s (XOM) third-quarter results revealed an 18% decline in earnings, Chevron’s (CVX) quarterly earnings dropped nearly 6% during the period, and Shell’s (RDS.A; RDS.B) third-quarter profit (on a current cost of supplies basis) slid 31% from the same period a year ago. Only ConocoPhillips’ third-quarter results (COP) showed adjusted earnings expansion during the quarter (about 7%). Source: Valuentum The investment landscape in the ‘Major – Oil & Gas’ space remains mixed, in our view. We liked ConocoPhillips third-quarter results, but its hefty capital investment plan and net debt position certainly don’t speak of equity … Read more

Exxon Misses, ConocoPhillips Raises Production, and Shell Writes Down North American Shale Assets

by

As Valuentum members are aware, we think the oil majors each have their own respective strengths and weaknesses. Exxon Mobil (XOM) has consistently earned the best economic returns (ROCE) among peers, but its stock price is rich, trading at the high end of our fair value estimate range (at the time of this writing). ConocoPhillips (COP) continues to raise its production forecasts and is the second-best value-creator (ROCE) in the group. However, Chevron (CVX) has the strongest balance sheet among peers (it has the only net cash position), and by extension, is better-positioned to raise its dividend during the troughs of future energy-price cycles. Meanwhile, BP (BP) continues to deal with the aftermath of its well-publicized 2010 oil spill in … Read more

Total Reports Strong Third Quarter

by

On Wednesday, Total (click ticker for report: ) reported strong third-quarter results. Revenue advanced 8%, while adjusted net income surged 20% from the prior-year period, to 3.3 billion euros, thanks to strong performance across all segments. We don’t expect to make a material change to our fair value estimate. In its upstream operations, where adjusted net operating income jumped 21% in the quarter, Total expects the ramp up of recent start-ups (Angola LNG, Sulige in China, and Kashagan in Kazakhstan) and progress of major projects to continue to propel profitable growth. During the third quarter, Total launched the development of the Tempa Rossa field in Italy, and we’re also excited about exploration endeavors in the Gulf of Mexico, Italy, Ivory … Read more