Why Chevron Stock Popped After Earnings
Key Points
Chevron beat on sales and earnings this morning.
Earnings are falling alongside oil prices, however, and the Hess acquisition isn't helping.
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Chevron (NYSE: CVX) stock jumped 2.4% through 11:55 a.m. ET Friday after reporting a sizable earnings beat this morning.
Analysts expected Chevron to earn $1.71 per share, adjusted for one-time items, on sales of $47.4 billion in Q3. Instead, Chevron reported $1.85 per-share profit, and sales exceeded $49.7 billion.
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Chevron Q3 earnings
Chevron produced a record number of barrels of oil equivalent (BoE) in Q3, 4.1 million BoE per day on average, which was up 21% from last year -- but less profitably so.
Earnings for the quarter came to $3.5 billion, or $1.82 per share when calculated according to generally accepted accounting principles (GAAP) accounting standards (remember, the $1.85 per share was adjusted, and non-GAAP). This was 27% less profit per share than Chevron earned in Q3 2024.
Chevron blamed "transaction costs related to the acquisition of Hess Corporation" for part of the decline in profit, but oil prices have also been trending lower over the past year, which is a big part of the problem.
Free cash flow for the quarter was down about 12% at $4.9 billion.
Is Chevron stock a buy?
Chevron didn't provide guidance for how Q4 might look, but Wall Street analysts who follow oil stocks predict Chevron will earn $6.68 per share this year, and generate about $16.8 billion in positive free cash flow.
On Chevron's $316 billion market capitalization, that works out to about 23.5 times current-year earnings, but only 18.8 times free cash flow for the stock's valuation -- not bad prices if Chevron can grow double digits. Unfortunately, most analysts think Chevron will struggle to grow earnings much faster than 8% annually over the next five years.
Absent a surge in oil prices, that makes Chevron stock look like a sell.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
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