Late last month, Chevron Corporation (CVX) — the second largest U.S. oil company — announced its financial results for the first quarter ended March 31, 2010.
Now that the Wall Street analysts have had some time to digest the quarterly performance of Chevron, they are weighing in with their estimate revisions.
Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the outlook for the stock.
Earnings Review
On Apr 30, 2010, Chevron reported earnings per share (excluding foreign-currency effects and employee reduction charges) of $2.46, blowing past the Zacks Consensus Estimate of $1.94 and the year-ago adjusted profit of 75 cents. Quarterly revenue of $48.2 billion was up 33.4% from the year-earlier level.
The significantly better-then-expected results were mainly driven by higher crude realizations. Robust upstream production growth also contributed towards Chevron’s strong results.
(Read our full coverage on this earnings report: Chevron Profits Soar on Oil Prices)
Agreement of Analysts
The following table reflects a strong positive agreement among the analysts regarding Chevron’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days.
Out of 19 analysts covering the stock, 10 have revised upwards their estimates for 2010, while 2 have revised in the opposite direction. Looking forward to 2011, the trend is more or less similar. 11 analysts (out of 20) improved upon their estimates with just 3 negative revisions.
Estimates are up for the June and Sept quarters of 2010 as well. For both the quarters, 8 of the 15 analysts have increased their estimates over the last 30 days, as compared to only 3 negative revisions.
This impressive trend in estimate revisions promises a consistent stream of earnings, buoyed by strong first quarter performance in tandem with more favorable operating scenario for the remainder of 2010 and ahead. Additionally, recent dividend increase (Chevron announced a 5.9% increase in its quarterly dividend to 72 cents per share, or $2.88 per share annualized) have boosted the dividend yield to an attractive 3.8%, again highlighting management confidence in continued strength in operating cash flows.
However, the last 7 days have hardly seen any estimate changes (as clear from the table below), indicating that the revisions were in response to the company’s earnings announcement.
Magnitude of Estimate Revisions
As a result of the large number of analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for fiscal 2010 and 2011 have gone up by 47 cents (from $8.27 to $8.74) and 23 cents (from $10.03 to $10.26), respectively. Meanwhile, estimates for the June and Sept 2010 quarters are up by a rather less pronounced 2 cents and 3 cents, respectively.
The healthy magnitude of estimate revisions since the earnings release is based on Chevron’s high oil price sensitivity, positive production outlook, and rebounding downstream operations. The company plans to boost returns and remain competitive in this difficult environment by embarking on aggressive cost reduction initiatives, exiting unprofitable markets, and streamlining the organization.
Our Recommendation
Despite the crushing first quarter results and the strong outlook, our short-term as well as long-term recommendations on Chevron remain Hold (Zacks #3 Rank) and Neutral, respectively.
We like Chevron’s strong pipeline of development projects and impressive recent exploration successes that will drive the company’s long-term success. We also welcome Chevron’s business strategy to boost focus on the more lucrative and well performing ‘upstream’ exploration and production end of the business (mainly natural gas and Asia), both at home and abroad.
However, the uncertain commodity-price scenario and the weak refining environment will continue to weigh on the company’s revenue and profitability, at least in the near-to-medium term. Major risk factors include share price sensitivity to oil prices, production shortfalls associated with PSC (Production Sharing Contract) interest reductions, exploration results and unpredictable downstream performance.
Read the full analyst report on “CVX”
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