(CVX) Chevron: Still a Good Value

San Ramon, California-based Chevron Corporation (CVX) is one of the six super major oil and gas companies in the world and the second-largest energy firm in the U.S. behind Exxon Mobil (XOM). As a vertically-integrated oil entity, it is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.

Chevron, in its present form, resulted from the 2001 merger between Texaco and Chevron Corporation. In August 2005, the company acquired Unocal for $18.4 billion. The company divides its operations into three main segments: Exploration and Production; Manufacturing, Products, and Transportation; and Other Businesses.

Right at the beginning of 2012, shares of Chevron hit a 52-week high of $110.99. The integrated oil giant has seen its share price climb approximately 20% since October last year, as investors have been buying the stock for its attractive fundamentals and positive outlook.

Despite this price appreciation, we remain optimistic on the firm’s near-term prospects, supported by consistency in its earnings/cash flows, attractive fundamentals and a positive outlook. Chevron currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

Catalysts: Strong Fundamentals and a Solid Growth Plan

With the economic rebound strengthening and oil prices rallying, we expect integrated oil companies such as Chevron to continue to accelerate revenue and earnings growth over the next few quarters.

Chevron’s current oil and gas development project pipeline is among the best in the industry, targeting volume growth of 20% by 2017 more than twice the rate of growth from 2003 to 2010 driven by the big Australian gas projects (Gorgon and Wheatstone).

The company’s financial flexibility and strong balance sheet are real assets in this highly-uncertain period for the economy. Chevron remains in excellent financial health, with $14.2 billion in cash on hand and an investment-grade credit rating with a debt-to-capitalization ratio of under 10%. Management has also established quite a track record of conservative capital management and cash returns to shareholders.

It also pays a growing dividend, currently yielding an attractive 3.0%. Chevron has a long and consistent dividend paying record. The company has paid a dividend every year since 1912 and has hiked the payout for 24 straight years. As such, we believe Chevron’s dividend to be safe and reliable.

Even though the bulk of Chevron s sales/earnings is dependent on non-renewable energy sources like crude oil and natural gas, the company also focuses on developing alternative energy solutions. In this regard, Chevron has made strategic investments in geothermal, solar technologies and other sources of energy.

It is also involved in the development of solutions which takes waste streams of organic material and converts them into renewable energy that provide on-site power for wastewater treatment plants.

To Conclude

Chevron Corp. is one of the largest integrated energy companies in the world and has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

All in all, we believe Chevron is favorably positioned to continue accelerating revenue/earnings growth over the next few quarters. Considering its fairly cheap valuation, we believe Chevron is in bargain territory, at least in the short-term.

CHEVRON CORP (CVX): Free Stock Analysis Report

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