Stock Analyst Update

Strategic Changes Unlikely If Chevron CEO Departs

Allen Good, CFA

John Watson’s run as  Chevron's (CVX) CEO appears to be nearing an end, with news reports indicating he will step down next month.

There are three likely successors--Michael Wirth (vice chairman and executive vice president, midstream and development), Pierre Breber (executive vice president, downstream and chemicals), and James Johnson (executive vice president, upstream)--with Wirth reported as the most likely to take the post. We think this is reasonable, given his success running the downstream operations and appointment as vice chairman earlier this year, a role Watson held before his elevation to CEO.

We don't see anything nefarious in Watson’s departure as he's served nearly eight years, only slightly less than the tenure of his two predecessors. Furthermore, the company is entering a new era as it wraps up a multiyear investment phase with the completion of several large capital projects. The next phase will be focused on capital and cost discipline and measured growth in what is likely to be an environment of sustained lower oil prices.

Regardless of who takes the helm next, Chevron’s strategy is unlikely to change. We expect the next CEO to keep the focus on dividend growth while restricting capital to high-return base reinvestment, Permian growth, and only select international major capital projects. Despite its history of cost overruns in Australia, we continue to see Chevron’s management focused on cost and disciplined with capital while prioritizing shareholder returns and steady dividend growth. These priorities shouldn’t change with a new CEO, leaving our Exemplary stewardship rating intact. Our fair value estimate and narrow moat rating are also unchanged.

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Allen Good, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.