Global integrated energy company, Chevron Corp. (CVX) is expected to report its fourth quarter and full year 2010 earnings on Friday, January 28, 2011, before the opening bell. The Zacks Consensus Estimate for the fourth quarter is $2.38 per share, while that for fiscal 2010 is $9.36 per share.
Third Quarter 2010 Recap
Chevron’s earnings per share, excluding one-time items, came in at $2.06, below the Zacks Consensus Estimate of $2.15 but above the year-ago adjusted profit of $1.80. Revenues increased 6.6% year over year to $49.7 billion and also surpassed the Zacks Consensus Estimate by 3.3%.
The company’s third quarter results were impacted to some extent by costs related to the Gulf of Mexico (GoM) drilling moratorium and lower U.S. volumes.
Outlook
In the fourth quarter 2010 interim update, released on January 11, 2011, the company announced that it expects earnings for the upcoming quarter to be higher than the previous one, buoyed by a rise in crude prices and robust demand.
Refining and Chemicals segment results for the quarter would reflect the $400 million gain from the sale of a stake in Colonial Pipeline Company. Chevron expects net after-tax charges associated with corporate and other activities to come in between $250 million and $350 million.
Agreement of Analysts
The analysts exhibit a positive sentiment for Chevron in the to-be reported quarter based on the company’s strength in the operational front and start-up of activity in the Gulf region.
In the last 30 days, out of the 15 analysts covering the stock, 8 analysts have raised their estimates for the fourth quarter of 2010 as against 3 analysts who moved in the opposite direction. In the last 7 days, one analyst moved upward while another made a downward revision.
For fiscal year 2010, out of 14 analysts, 7 have hiked their projections, while only 2 have slashed their estimates over the past one month. However, in the last one week, only one analyst has moved in the downward direction.
Magnitude of Estimate Revisions
Taking into effect the analysts’ earnings revision, the Zacks Consensus Estimate for the fourth quarter and full year 2010 went up to a respective $2.38 and $9.36 per share from $2.32 and $9.29 per share, over the last 30 days.
However, over the past one week, the Zacks Consensus Estimate for the quarter remained static, while it decreased by a penny for the full year.
Surprise History
Chevron exhibited a mixed earnings surprise trend over the last four quarters. The company recorded a minimum surprise of negative 13.0% in third quarter 2010 while a maximum of 21.7% in first quarter 2010. On average, the earnings surprise was 2.6%.
The current Zacks Consensus Estimates for the fourth quarter and fiscal 2010 show upside potential of 0.4% and 0.2%, respectively.
Our Take
We believe that California-based Chevron exhibits a strong growth momentum in the coming years reflected by the targeted volume growth of 1% through 2014 and 4–5% in the next three years. The Gorgon and Wheatstone natural gas projects in Australia and opportunities in the deepwater GoM, offshore western Africa and the Gulf of Thailand will act as prime catalysts for this endeavor.
Moreover, Chevron’s healthy financial position will enable it to capitalize on investment opportunities and undertake strategic acquisitions. The recommencement of the share buyback program is another positive move on part of the company.
However, Chevron remains particularly vulnerable to unstable oil and gas prices, supply-demand imbalance and international business risks. We are also concerned about the company’s high level of capital spending, which may result in reduced returns going forward. We are maintaining our long-term Neutral recommendation on the stock.
Chevron, the market value of which comes after ExxonMobil Corp. (XOM), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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