2010 May Be A Good Year for Oil Giant Chevron (CVX) - Barron's (XOM, XTO, COP, More...)
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Chevron (NYSE: CVX) could have a great 2010, according to an article from Barron's. The company recently changed their CEO, as David O'Reilly retired after 41 years at the company. The new CEO, John Watson, already has 29 years at the company.
Oil production and exploration for the company added 86% to Chevron's profit in 2008, and they have one of the best exploration-growth profiles in the industry. Chevron also has 66.7% of its 11.2 billion of oil-equivalent reserves as crude. ConocoPhillips (NYSE: COP) had oil account for 59% of total reserves, and ExxonMobil's (NYSE: XOM) oil reserves are reduced to 49% post-acquisition of XTO Energy (NYSE: XTO).
Investors and analysts bearish on CVX see the stock gaining 20% or more in 2010. Chevron is also one of the largest payers of a dividend on the S&P 500, doling out more than $5.5 billion for a per-share annualized payment of $2.72.
Shares of Chevron are up about 37% since March lows, and up 8% at the end of 2009. Bank of America Merrill Lynch has Chevron as their top-pick among integrated oil companies, and has a price target of $95 on CVX. The target stems somewhat from the thought that crude oil prices will rise to $85 per barrel in 2010.
The Street sees Chevron with an EPS of $7.76 and revs of $185.09 billion for FY10. FY09 has CVX with an EPS of $5.06 and revs of $162.57 billion.
Chevron's costs for oil ad gas exploration are higher than most competitors, and the stock trades at a discount to Exxon. 2010 estimates have Exxon trading at 11.9x FY10 EPS, and Chevron trading at just 10x FY10 EPS. Bank of America looks at Chevron's enterprise value (market value plus net debt) and sees EV/adjusted cash flow of 4.7. The bank believes that that number should be closer to 6, and Exxon currently has a ratio of 8.3.
Concerns include the company planning to spend $21.6 billion for 2010, 5% below what was spent in 2009. Chevron also has some pretty poor margins for refining, though Barron's sees this bottoming out.
Chevron's company Texaco is involved in a lawsuit claiming that the company is contaminating rain forests with toxic petroleum waste. Should Chevron lose, profits could take a $27 billion hit, though it wouldn't be due in a lump-sum. Attorney's for the integrated oil giant have also presented evidence of bribery in the case.
Chevron acquired Texaco in 2001 for $35 billion, giving them a major refinery operation. In 2005, Chevron made an acquisition of Unocal for $18 billion, enlarging their footprint in Asia. In terms of the expanding Asian marketplace, CVX has refineries in California as well as Singapore, Thailand, and South Korea.
The company is aiming to narrow margins by investing more in refineries that will allow for the use of low-cost, local gas.
Chevron is looking to give Australia an economic stimulus by investing $37 billion in a natural gas field. The investment is to extract an estimated 6 billion barrels of oil equivalent from West Australia.
New projects and efforts to narrow margins may offset the chance that oil will not rise as much as expected in 2010.
Oil production and exploration for the company added 86% to Chevron's profit in 2008, and they have one of the best exploration-growth profiles in the industry. Chevron also has 66.7% of its 11.2 billion of oil-equivalent reserves as crude. ConocoPhillips (NYSE: COP) had oil account for 59% of total reserves, and ExxonMobil's (NYSE: XOM) oil reserves are reduced to 49% post-acquisition of XTO Energy (NYSE: XTO).
Investors and analysts bearish on CVX see the stock gaining 20% or more in 2010. Chevron is also one of the largest payers of a dividend on the S&P 500, doling out more than $5.5 billion for a per-share annualized payment of $2.72.
Shares of Chevron are up about 37% since March lows, and up 8% at the end of 2009. Bank of America Merrill Lynch has Chevron as their top-pick among integrated oil companies, and has a price target of $95 on CVX. The target stems somewhat from the thought that crude oil prices will rise to $85 per barrel in 2010.
The Street sees Chevron with an EPS of $7.76 and revs of $185.09 billion for FY10. FY09 has CVX with an EPS of $5.06 and revs of $162.57 billion.
Chevron's costs for oil ad gas exploration are higher than most competitors, and the stock trades at a discount to Exxon. 2010 estimates have Exxon trading at 11.9x FY10 EPS, and Chevron trading at just 10x FY10 EPS. Bank of America looks at Chevron's enterprise value (market value plus net debt) and sees EV/adjusted cash flow of 4.7. The bank believes that that number should be closer to 6, and Exxon currently has a ratio of 8.3.
Concerns include the company planning to spend $21.6 billion for 2010, 5% below what was spent in 2009. Chevron also has some pretty poor margins for refining, though Barron's sees this bottoming out.
Chevron's company Texaco is involved in a lawsuit claiming that the company is contaminating rain forests with toxic petroleum waste. Should Chevron lose, profits could take a $27 billion hit, though it wouldn't be due in a lump-sum. Attorney's for the integrated oil giant have also presented evidence of bribery in the case.
Chevron acquired Texaco in 2001 for $35 billion, giving them a major refinery operation. In 2005, Chevron made an acquisition of Unocal for $18 billion, enlarging their footprint in Asia. In terms of the expanding Asian marketplace, CVX has refineries in California as well as Singapore, Thailand, and South Korea.
The company is aiming to narrow margins by investing more in refineries that will allow for the use of low-cost, local gas.
Chevron is looking to give Australia an economic stimulus by investing $37 billion in a natural gas field. The investment is to extract an estimated 6 billion barrels of oil equivalent from West Australia.
New projects and efforts to narrow margins may offset the chance that oil will not rise as much as expected in 2010.
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