Chevron Earnings: No Surprises After Announcement Earlier in the Week; Repurchase Rate Reduced

Chevron’s CVX second-quarter earnings held little surprise after the firm issued an announcement earlier in the week, but they did exceeded market expectations with adjusted earnings of $5.8 billion compared with $11.4 billion a year before. Earnings fell from last year on lower price realizations and weaker global refining margins. Production increased to 2,959 thousand barrels of oil equivalent per day from 2,896 mboe/d the year before due largely to the Permian, which hit a record 772 mboe/d.

Chevron remains committed to pushing Permian plateau production to over 1 mmboed in the next five years while delivering returns of over 30% and free cash flow of $5 billion by 2027, assuming $60/bbl. While positive, we see this as largely priced in. Our $161 fair value estimate and narrow moat rating, which assumes long-term prices of $60/bbl, remain unchanged, implying shares are fairly valued.

During the quarter Chevron paid $2.8 billion in dividends and repurchased $4.4 billion in shares, in line with guidance. For the third quarter, repurchases will fall to $3.0 billion but remain within the $10 billion-$20 billion annual guidance. Net debt/capital increased to 7% at the end of the quarter.