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Expect Much Improved Results From Chevron Despite Headwinds

Attendees stand near Chevron Corp. signage during the World Gas Conference in Washington, D.C., on Tuesday, June 26, 2018. The 27th World Gas Conference, themed Fueling the Future, is held every three years in the country holding the Presidency of the International Gas Union (IGU). (Photographer: Andrew Harrer/Bloomberg)© 2018 Bloomberg Finance LP

Chevron (NYSE:CVX) has made a number of key moves, during the recent quarter, by selling off a number of fields, while continuing to make a number of tactical purchases. During the quarter, Chevron sold its Petrobras stake in the Frade Deep-water field, whilst purchasing Petrobras’ refinery in Pasadena. These deals are expected to help Chevron improve their margins. With Chevron’s margins falling below historical levels, management has decided to embark on a strategy to improve the company’s efficiency. Oil prices did significantly decline and the expected average realized price of oil for Chevron, should average from 54-56 dollars/barrel, for the quarter.

We currently have a price estimate of $125 per share for the company, which is 10% higher than its market price. View our interactive dashboard Chevron 4Q Pre-Earnings and modify the key drivers to visualize the impact on the company’s valuation.

What to Expect from Chevron for the Fourth Quarter:

*Earnings are expected to come in at $1.86 per share, this on a total revenue of $46 billion. Consensus estimates have been lowered in recent days falling from the initial estimates of $2.00. The estimated earnings per share represent a 165% increase yoy, and a 22% increase for revenue.

* Debt increased by $16.5 billion during the oil price decline in 2014-2016, Chevron has since managed to cut its debt by $9.5 billion. Expect Chevron to continue reducing its debt for the quarter,

*Cash flow is expected to improve, as the company heads back to historical profitability levels.

Chevron has been struggling to get profitability back to its historical rates, with return on equity, and operating profits, both below historical trends. As mentioned earlier, Chevron’s management has been actively taking steps to reduce the areas of their business that were not as profitable as they would have liked. Moves made in the quarter should help the oil major improve its earnings prospects.

Chevron is overall well placed for the quarter with key investments, and its upstream projects expected to continue to have steady profitability, despite a fall in oil prices. Overall, we expect the quarter to show much improved results, and the stock may see some upside as results come in.

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