Chevron Analyst Day: Management Emphasizes Discipline

Apart from an increase in its repurchase guidance, there was little news from Chevron’s CVX annual analyst day on Feb 28. It now expects to repurchase $10 billion-$20 billion in shares annually, at oil prices ranging from $50/bbl-$70/bbl, compared with a previous maximum of $15 billion, which was a midyear 2022 increase from $10 billion at last year’s update. Although oil prices are above $70/barrel currently, it is only increasing its current second-quarter repurchase amount to an annual rate of $17.5 billion. Meanwhile, it extended to 2027 from 2026 and slightly increased its long-term target for a return on capital employed to more than 12% from 12% last year and rebased its cash flow targets to a more than 10% total free cash flow growth target from a more than 10% operating cash flow per-share amount last year. Also of note, both targets still assume $60/bbl for oil, but Henry Hub and international gas prices increased, meaningfully. Importantly, capital-expenditure guidance of $13 billion-$15 billion per year plus $2 billion in affiliate spending, as well as the Permian production target of 1 million barrels of oil equivalent per day, remains unchanged.

With the underlying portfolio and targets largely unchanged, we don’t see anything in the update to change our view on the company. We plan to update our model, but with key guidance items and our long-term oil price of $60/bbl unchanged, our $149 fair value estimate and narrow moat are unlikely to change. This implies shares remain fully valued. However, Chevron remains an attractive long-term investment given its high-quality portfolio, largely tied to oil prices with a management team focused on capital discipline and shareholder returns.