Why Chevron Stock Slumped 12.3% in the First Half of 2023

What happened

Shares of Chevron (CVX 0.37%) declined by 12.3% during the first half of 2023, according to data provided by S&P Global Market Intelligence. That significantly underperformed the S&P 500, which rallied 15.9%. 

Lower oil prices are the primary issue weighing on the oil stock this year. That offset what has been a solid start to the year for Chevron. 

So what

Oil prices continued to cool off this year. Brent crude oil, the global benchmark price, declined by more than 10% during the first half of the year, including 6.1% in the second quarter. That marked four straight quarterly declines for oil prices since peaking in the triple digits last summer. Brent ended the first half below $75 per barrel. 

Lower oil prices impact the earnings of oil producers like Chevron, which has been the case this year. While Chevron produced strong adjusted earnings this year ($6.6 billion in the first quarter), that was below the $7.9 billion it earned in the fourth quarter (which it reported in January) and the $10.8 billion it earned in last year's third quarter. Chevron's declining earnings put downward pressure on its stock price. 

However, this year wasn't all bad news for Chevron and its investors. The company announced a 6% dividend increase in January. That marked its 36th consecutive year of boosting its payout. Chevron also unveiled a $75 billion share repurchase authorization. The company plans to buy back shares at a $10 billion to $20 billion annual rate. It can achieve the low end of that range at an average oil price of $60 a barrel through 2027 while continuing to grow the dividend and investing in expanding its traditional and lower-carbon businesses. That's enough money to retire 3% to 6% of its outstanding shares each year at the recent price. 

Meanwhile, Chevron capitalized on the decline in oil prices to make a needle-moving acquisition. It agreed to buy PDC Energy in an all-stock deal valuing the fellow oil and gas producer at $7.6 billion. The acquisition will boost Chevron's oil-equivalent reserves by 10% for less than $7 a barrel. Meanwhile, it will increase its annual free cash flow by $1 billion starting next year, assuming oil averages $70 a barrel. The acquisition will boost Chevron's earnings in the near term while giving it more upside to higher prices in the future. 

Now what

Chevron's stock slumped along with oil prices during the first half of the year. However, the company took advantage of the situation by using its still strong oil-fueled cash flow to repurchase shares. It also made a needle-moving deal. These moves put Chevron in an even better position to create value for shareholders if oil prices rise in the future. 

Meanwhile, the sell-off in the share price pushed its dividend yield up near 4%. That makes Chevron seem appealing for those seeking income and upside for a potential bargain price.