Is Chevron a Good Stock to Buy?
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Chevron Corporation
We?ve already mentioned the $3.66 in EPS that Chevron earned during the second quarter of 2012. This figure was down 5% from the second quarter of last year, reflecting a 9% decline in revenue and higher margins that resulted from successful cost cutting. Over the first half of the year, revenue was down 5% compared to the same period in 2011 but net income was down only 2%; because of a small reduction in shares EPS were down only a penny, from $6.94 to $6.93.
Chevron currently trades at only eight times trailing earnings, but in the third quarter of last year it earned $3.67 per share, and the company?s statement indicates that its results for Q3 2012 were well below that figure. Recent analyst consensus has been for $12.59 in earnings per share for 2013- which implied a forward P/E of 9- but that predates the updated guidance. Since analysts had previously estimated $3.06 in earnings per share for the last quarter, it is possible that Chevron will actually end up beating those expectations and still be on track to achieve the sell-side targets for next year. However, we would guess that will not be the case.
Chevron made our list of the ten most popular energy stocks among hedge funds in the second quarter (see the full rankings). One of these funds, which increased its stake by 4% during the quarter, was Cliff Asness?s AQR Capital Management. AQR owned 1.6 million shares of Chevron at the end of June, which made it the fund?s third largest 13F position by market value at that time (research more of Cliff Asness's favorite stocks). Adage Capital Management sold shares on net but still reported a position of 2.8 million shares. Adage is managed by Phil Gross and Robert Atchinson, who previously worked at Harvard Management (find other stocks that Adage owns).
ExxonMobil Corporation (NYSE: XOM)
ExxonMobil and ConocoPhillips have forward P/E multiples of 11 and 10, respectively, and we would guess that once analysts have processed Chevron?s recent news that company will be at that pricing as well if not higher (of course, ExxonMobil and ConocoPhillips could be encountering similar business conditions). Both of these two peers have been seeing sales fall, though ExxonMobil saw a substantial increase in earnings last quarter versus a year earlier. ConocoPhillips pays a 4.6% dividend yield, while ExxonMobil?s is 2.5%.
Chevron?s recent news has not been good, and a number of its peers have similar valuation multiples and pay more generous dividends (though it remains to be seen how the same factors harming Chevron?s business will affect them). Even though Chevron looks cheap, other oil and gas stocks are probably better buys.
Source: http://feeds.fool.com/~r/usmf/foolwatch/~3/p1xu2gQq2xA/story01.htm
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