Chevron Corporation (NYSE:CVX) is preparing to announce its third-quarter 2024 earnings on November 1. With the Consensus Estimate forecasting an EPS of $2.66 and revenue of $51.1 billion, this quarter’s report has investors eager to assess Chevron’s current valuation. As one of the largest energy companies in the U.S., Chevron’s performance in the face of fluctuating oil and gas prices will be closely watched. This article provides a Chevron Q3 earnings analysis, evaluating whether the stock is a buy, hold, or sell.

Expected Performance and Earnings Beat Potential 

Chevron’s projected earnings for Q3 indicate a year-over-year decline, with EPS estimates down by 12.8% from the same period last year. Revenue expectations, however, are more optimistic, with a 5.5% increase forecasted. Chevron’s record has been mixed recently, as it exceeded earnings expectations twice but missed them in two quarters over the past year. 

Oil and Gas Price Impact on Chevron’s Upstream Operations

The primary factors shaping Chevron’s third-quarter performance are lower oil and gas prices compared to the prior year. West Texas Intermediate (WTI) crude prices in July, August, and September of 2024 averaged lower than the same months in 2023, dropping as much as 15% from the previous year. Natural gas prices were also down, with U.S. Henry Hub prices averaging $2.28 per MMBtu in September, compared to $2.64 per MMBtu in September 2023. Lower commodity prices could reduce upstream earnings, as reflected in the Consensus Estimate of $4.2 billion for Chevron’s upstream segment, which would mark a significant decrease from last year.

Despite this, Chevron’s production volume remains strong. The acquisition of PDC Energy and steady production in the Permian Basin have boosted output. Chevron’s Q3 output is projected to reach 3,278 thousand barrels of oil equivalent per day (MBOE/d), up from 3,146 MBOE/d last year, signaling solid production levels even amid pricing challenges.

Downstream Segment Challenges and California Regulations 

Chevron’s downstream operations may face pressure from tightening margins, particularly on the West Coast. A weakened crack spread and California’s stringent fossil fuel policies may weigh on this segment. The Consensus Estimate for Chevron’s downstream earnings stands at $764 million, indicating a 55% year-over-year decline. Regulatory challenges in California and similar markets could continue to impact Chevron’s downstream profitability moving forward.

Hess Acquisition: Growth Potential and Risks 

Chevron recently announced a $53 billion acquisition of Hess Corporation (NYSE:HES), aiming to expand its asset base and strengthen its production growth. This acquisition presents potential growth in Hess’s Guyana assets and other international holdings. However, integrating these assets poses challenges and risks, particularly as Chevron will face increased scrutiny regarding regulatory compliance and antitrust review.

This acquisition has both short-term and long-term implications, as it could strain Chevron’s cash flow in the near term while offering promising growth potential over the long haul.

Stock Performance and Valuation 

Against Peers Year-to-date, Chevron’s stock performance has trailed ExxonMobil (NYSE:XOM), with CVX up only 4% compared to XOM’s 8% rise. Chevron’s EV/EBITDA multiple is 5.95, which remains attractive relative to its 10-year average, suggesting value for those focused on long-term investment potential. However, with Chevron’s payout ratio climbing to 54% in recent quarters, questions have arisen regarding dividend sustainability, especially during cyclical downturns.

Investor Takeaway: Buy, Hold, or Sell? 

Chevron Q3 earnings analysis reveals a mixed picture. While the company has growth potential in its upstream and newly acquired assets, it faces pricing pressures, regulatory constraints, and increased expenses tied to the Hess acquisition. The increased payout ratio may appeal to dividend-focused investors, yet it raises sustainability concerns if energy markets continue to experience volatility.

In conclusion, Chevron’s stock may be best suited as a hold for those already invested, given its steady dividend yield and robust production profile. For new investors, Chevron presents both growth potential and notable risks, making it a stock to approach cautiously until market conditions stabilize and the impact of the Hess acquisition becomes clearer.

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