What's in the Cards for Chevron (CVX) This Earnings Season?

Zacks Equity Research
·5-min read

Chevron Corporation CVX is scheduled to release third-quarter 2020 results on Friday Oct 30, before the opening bell.

The current Zacks Consensus Estimate for the to-be-reported quarter’s loss is pegged at 21 cents per share and the same for revenues stands at $26.12 billion.

Against this backdrop, let’s consider the factors that are likely to impact the company’s September-quarter results.

Factors at Play

Chevron's cost-reduction efforts have been encouraging enough. In view of the historic oil market crash and the coronavirus-induced weak demand for the commodity, Chevron expects to spend $14 billion for the ongoing year, indicating a further guidance cut from the previously lowered projection of $16 billion. The current estimate implies a 30% reduction from the initial forecast of $20 billion. The company is also targeting $1 billion of operating cost cutbacks. All these strategic moves are expected to have driven third-quarter earnings and cash flows higher.

However, the positive effect of cost savings is likely to have been offset by lower realized commodity prices. By now, we are well aware that the oil price has been under continuous pressure ever since the coronavirus crippled global energy demand. As a result, the outlook for all industries in the energy sector seems dull.  Per the U.S. Energy Information Administration, WTI prices started the third quarter of 2019 at $59.09 per barrel and exited the same period at $54.07. In 2020, prices were at $39.82 a barrel at the outset of the comparable quarter but later rose to $40.22 at September-end. The year-over-year fall in price realizations is expected to have affected Chevron’s upstream earnings in the quarter under review. The Zacks Consensus Estimate for the to-be-reported quarter’s earnings from the upstream segment is pegged at $249 million. Meanwhile, the year-ago quarter recorded a profit of $2.7 billion.

Moreover, the company is likely to have suffered lower production in the third quarter. The Zacks Consensus Estimate for the to-be-reported quarter's overall crude oil and natural gas production stands at 2,933 thousand oil-equivalent barrels per day (MBOE/d), implying a 3.3% decrease from 3,033 MBOE/d reported in the comparable year-earlier period.

What Does Our Model Say?

The proven Zacks model does not conclusively predict an earnings beat for Chevron this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Chevron has an Earnings ESP of 0.00%.

Zacks Rank: Chevron has a Zacks Rank of 4 (Sell), currently.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Highlights of Q2 Earnings & Surprise History

Chevron reported adjusted second-quarter loss per share of $1.59, comparing unfavorably with the Zacks Consensus Estimate of a loss of 93 cents. However, the company earned $1.77 per share in the year-ago period. This underperformance reflects lower oil and natural gas price realizations plus a decline in refined products margins.

The company generated revenues of $13.5 billion. The top line not only missed the Zacks Consensus Estimate of $20.5 billion but was also down 65.3% year over year.

As far as earnings surprises are concerned, this San Ramon, CA-based Chevron boasts an excellent record as its bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same in the remaining one. The average surprise is 10.03%. This is depicted in the graph below:

Chevron Corporation Price and EPS Surprise

Chevron Corporation Price and EPS Surprise
Chevron Corporation Price and EPS Surprise

Chevron Corporation price-eps-surprise | Chevron Corporation Quote

Stocks to Consider

While earnings outperformance looks indefinite for Chevron, here are some firms worth considering from the energy space on the basis of our model, which shows that these have the perfect combination of ingredients to deliver a beat this reporting cycle:

Marathon Oil Corporation MRO has an Earnings ESP of +1.50% and is Zacks #3 Ranked at present. The company is scheduled to release earnings on Nov 4.

NuStar Energy L.P. NS has an Earnings ESP of +2.94% and is a Zacks Rank #2, presently. The firm is scheduled to release earnings on Nov 5.

Targa Resources, Inc. TRGP has an Earnings ESP of +65.21% and a Zacks Rank #3, currently. The company is scheduled to release earnings on Nov 5.

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