Chevron Hikes Dividend, Reports Weak Refining - Buy, Hold, or Sell?

Core Viewpoint - Chevron Corporation's fourth-quarter performance was mixed, with adjusted earnings per share missing expectations while revenues exceeded forecasts, leading to uncertainty among investors about the company's future trajectory [1][2]. Financial Performance - Adjusted earnings per share were reported at $2.06, below the Zacks Consensus Estimate of $2.19 and significantly lower than the previous year's $3.45 [1]. - Revenues reached $52.2 billion, surpassing expectations and reflecting a year-over-year increase of 10.7% [1]. - The company increased its quarterly dividend by 5% to $1.71 per share, resulting in an attractive yield of approximately 4.5% [1]. Production and Growth - U.S. upstream production reached 1,646 thousand barrels of oil equivalent per day (MBOE/d), exceeding the consensus forecast of 1,635 MBOE/d [4]. - Chevron's U.S. output grew by 3% year over year, with record production levels in the Permian Basin, which helps offset a 5% decline in international production [5]. - The acquisition of Hess (HES) is part of Chevron's long-term growth strategy, potentially enhancing its stake in high-margin offshore fields in Guyana [5]. Strategic Initiatives - Chevron is leveraging its expertise in natural gas to supply power to AI-driven data centers, forming a partnership with investment firm Engine No. 1, with operations expected to start by late 2027 [6]. Challenges - The downstream segment reported a $248 million loss in Q4, marking its first refining loss in four years, attributed to lower refined product margins and higher operating costs [7]. - Free cash flow fell by 46% year-over-year to $4.4 billion, trailing the $7.3 billion spent on dividends and share repurchases, which may lead to reduced buybacks [9]. - The Zacks Consensus Estimate for Chevron's 2025 earnings has been downgraded, reflecting concerns over refining weakness and commodity price volatility [11]. Valuation - Chevron's stock is currently trading at a discount relative to ExxonMobil, making it appealing to value investors, supported by a Zacks Value Score of B [12]. Conclusion - Chevron's Q4 results present a mix of strengths and weaknesses, with strong revenue growth and a commitment to shareholder returns contrasted by weak refining margins and declining free cash flow, leading to a Zacks Rank of 3 (Hold) for the stock [13][15].