Falling oil prices and dismal fourth-quarter performance have sent stock prices of energy giants down. Chevron (CVX 0.44%) was no exception. However, if you're too much focused on the short-term factors, you may miss the impressive long-term performance of the company. There are reasons to be optimistic about the company's future performance as well.
Strong operational performance
As expected for commodity-based companies, Chevron's revenues and net income growth isn't consistent over the years. Commodity prices and one-off charges impact the company's top and bottom lines. However, Chevron's operational metrics have shown consistent growth over the years.
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Chevron's total oil-equivalent production has been steadily rising in the last three years. It's oil-equivalent production rose by 4% in 2019 and exceeded 3 million barrels per day for the first time the company's history. While the production is rising, Chevron is making sure to not only replenish but also add to its proved reserve balances. In 2019, it added around 494 million barrels of net oil-equivalent proved reserves. More importantly, Chevron expects its production to keep growing at an average annual rate of 3%-4% over the next four years.
Image source: Chevron. Chart by author.
In the downstream segment, sale of certain South Africa assets and lower margins on refined products sales impacted Chevron's earnings in 2019. However, the company's adjusted downstream earnings per barrel compare favorably among its competitors.
Chevron's strong operational performance has helped it in generating enormous operating cash flows. Moreover, its disciplined approach to capital investments means that it has lots of free cash to return to its shareholders. Notably, the company expects to keep growing production, without much of additional organic investment. Chevron is focusing more on investments with short cycle, but with higher and sustained returns. This has made its capital program more efficient. For 2020, the company expects to spend $20 billion on capital projects -- the same amount as it spent in 2019.
Conservative leverage
Chevron's positives don't end there. The company's net-debt-to-capital ratio is the lowest among its peers. It's conservative leverage positions it well for any oil price environment. Moreover, Chevron reduced its debt by more than $7 billion in 2019.
Chevron's strong free cash flows enable it to return value to shareholders in the form of dividends and share repurchases. In 2019, Chevron returned $13 billion to its shareholder via dividends and share buybacks. It expects share repurchases of $5 billion every year in the coming years.
Attractive valuation and yield
Chevron stock looks attractive based on relative valuation. Chevron is trading at a forward EV-to-EBITDA multiple of around 5.7 times, which is lower than that for ExxonMobil (XOM 0.02%) . Like the energy sector, the two stocks are also undervalued relative to the broader markets. As the sector's long-term demand and supply factors comes more in sync, its valuation should improve.
Finally, Chevron offers a very attractive yield. The company has increased its annual dividends consecutively for the last 32 years. Conservative leverage, strong free cash flows, and a solid track record of dividend growth make Chevron's attractive yield safe too. All in all, there are more than one reason to be excited about this stock currently.
