After Q1 Results, What Comes Next for Chevron Shareholders?

Core Viewpoint - Chevron Corporation's Q1 2025 earnings report shows a mixed performance, with adjusted earnings beating expectations but revenues missing, reflecting ongoing challenges in the energy market and investor concerns about the company's positioning [1][4][16]. Financial Performance - Adjusted earnings were $2.18 per share, down 26$47.6 billion, missing estimates [1][4]. - Upstream earnings decreased by 28.3% year-over-year due to weaker oil prices and flat production levels, while downstream profits slumped nearly 60% due to lower margins [4]. - Free cash flow was $1.3 billion, significantly below prior-year levels, but the company returned$6.9 billion to shareholders through dividends and buybacks [4]. Capital Management - Chevron has reduced its second-quarter buyback target to $2.5-$3 billion from $3.9 billion in Q1, indicating a cautious approach amid a shaky macro landscape [5]. - The company maintained capital discipline, spending$3.9 billion in Q1 and pursuing a $2–$3 billion cost reduction initiative through 2026 [7]. - Chevron's debt-to-capital ratio is around 16.6, indicating a strong balance sheet compared to global oil majors [7]. Asset Quality - Chevron benefits from a high-quality asset base, particularly in the Permian Basin, where 80% of its acreage has low or no royalty obligations, enhancing long-term returns [6]. - The company is also developing new projects like Ballymore in the Gulf of America and has strong operations in the Tengiz field in Kazakhstan [6]. Acquisition and Legal Issues - A significant concern is the pending $53 billion acquisition of Hess Corporation, which includes a 30% stake in the Stabroek block offshore Guyana [11]. - The arbitration case with ExxonMobil and CNOOC regarding the acquisition could impact Chevron's growth prospects, with hearings scheduled for late May [11][12]. Market Sentiment and Valuation - The broader market sentiment is challenging, with falling oil prices due to global trade tensions and OPEC+ developments affecting upstream earnings [13]. - Chevron trades at an EV/EBITDA multiple of 5.83, which is attractive compared to ExxonMobil and below its five-year historical average, suggesting potential value for long-term investors [14]. Conclusion - Chevron's Q1 performance highlights its strengths in cost control and operational efficiency, but macro headwinds and legal uncertainties cloud the near-term outlook [16]. - The company appears appropriately priced given its strong balance sheet and disciplined capital management, with a Zacks Rank of 3 (Hold) indicating a cautious stance for investors [17].