Chevron Hits 52-Week High - Is It a Buy or a Time to Hold?

Core Viewpoint - Chevron Corporation has experienced a strong year with a stock price increase of 16.3% year to date, outperforming ExxonMobil, driven by production growth, shareholder returns, and competitive valuation, but faces challenges from legal issues, asset sale risks, and geopolitical factors [1] Financial Performance - Chevron returned $27 billion to shareholders in 2024 through dividends and stock buybacks, with plans to repurchase $10 billion to $20 billion in shares annually, reducing share count by 3-6% each year [3] - The company has increased its dividend for 37 consecutive years, with the latest hike of 4.9%, resulting in a yield of over 4% [6] Production and Growth - Chevron's upstream portfolio shows strong production growth, particularly from the Permian Basin and Kazakhstan, targeting a 6% annual production increase through 2026 [8] - The Tengizchevroil expansion in Kazakhstan and improved efficiency in the Permian are expected to enhance output and support long-term earnings growth [8] Market and Policy Environment - Chevron stands to benefit from U.S. energy policy shifts favoring domestic oil and gas production, with rising energy demand from AI-driven data centers expected to boost natural gas consumption [9] Valuation - Chevron's valuation is reasonable, trading at an EV/EBITDA multiple of 6.99, which is favorable compared to ExxonMobil, potentially appealing to value-focused investors [10] Acquisition and Legal Challenges - The $53 billion acquisition of Hess Corporation aims to secure a 30% stake in Guyana's Stabroek block, but faces arbitration challenges from ExxonMobil and CNOOC [12] - Chevron is under pressure regarding its operations in Venezuela, with potential revenue losses of $150 million to $200 million per month due to sanctions [13] Asset Management and Divestitures - Chevron generated $7.7 billion from asset sales in 2024, with plans to divest $10-$15 billion worth of assets through 2028, raising concerns about long-term sustainability if profitable investments are not made [14] Downstream Business Performance - The downstream segment has been underperforming, contributing to a Q4 earnings miss with EPS at $2.06, falling short by 14 cents, despite a 10.7% year-over-year revenue increase to $52.2 billion [15] Market Volatility and Earnings Estimates - Broader market volatility and regulatory uncertainties could impact Chevron's future cash flow, with earnings highly sensitive to oil price fluctuations [17] - Recent earnings estimates for 2025 have been revised down, reflecting concerns about potential demand destruction [17] Conclusion - Chevron's strong free cash flow, shareholder-friendly policies, and production growth are positive factors, but geopolitical risks and uncertainty surrounding the Hess acquisition warrant caution, leading to a current Zacks Rank of 3 (Hold) [18]