(wow) Words Of Wonders Level 944 Answers – American oil majors have had a very successful year, and Q2 confirmed that the industry's profits were reduced due to rising inflation in the energy market. Chevron's Q2 profit was $11.6 billion, its biggest quarterly profit. So it's no surprise that CVX shares have outperformed the broader market. Over the past 12 months, shares of Chevron (NYSE: CVX ) have risen nearly 50% to a 6% loss on the S&P 500.
However, after Chevron's quarter, I am very cautious about the company's stock. I believe investors should take advantage of Chevron's strong quarter and benefit from a strong stock price and higher earnings. In my opinion, based on the increase in performance, the fund is being oversubscribed and the risk/reward is reduced. In other words, it's time to panic when others are greedy.
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The outlook for the oil industry is not easy, in my opinion. Based on the economic situation — inflationary pressures, falling asset prices, rising real incomes, economic growth in China and consumer confidence — he said he thinks oil will fall to $60/barrel. Oil is down 20% from its March 2022 high, and in my opinion, this is not weakness, but a warning sign of more pain to come. However, I expect a negative impact on oil and gas in the US, as I believe that investors still have confidence.
Playing For Time
If investors want to maintain exposure to the oil and gas industry, perhaps with a currency hedge, I would say that European peers such as Shell ( SHEL ), TotalEnergies ( TTE ) and Equinor ( EQNR ) offer the best risk/reward. High, according to their price range.
Chevron announced its earnings on July 29 and impressed investors with strong results. In the period from April to the end of June, total sales reached $68.8 billion, an increase of 80% compared to the same period in 2021. In addition, earnings were $11.6 billion, or $5.95 per share. , submitted., Chevron's. Interest every quarter. Analysts were expecting $9.9 billion.
Chevron's operating income is estimated at $21.8 billion, nearly double the $11.2 billion expected to flow through 2021. Excluding capital gains, net income jumped to $22.2 billion, up from 12.2 billion in 2021. 2021.
Chevron's earnings included non-operating and unused losses of only $268 million ($600 million loss on early contract termination, $200 million gain on sale of assets and $668 million due to favorable exchange rates).
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More importantly, Chevron's strong results were driven by high and low business. Lower than earlier compared to 2021 and higher twice. Overall, Chevron's top business accounts for less than 75% of the company's total revenue, and less than 25%.
But how sustainable are Chevron's profits? Investments in oil and gas companies are closely related to the price of oil. And I see, the price of oil is low.
My essay is based on looking at environmental damage around the world. With falling asset prices, rising interest rates and consumer confidence, it's hard to say that the global economy won't enter a recession. And in the midst of a global economic slowdown, nothing lowers commodity prices more than a drop in demand.
In particular, Edward Morse, head of global commodity strategy at Citi with a century of experience, said that he thought that oil (WTI benchmark) would drop to $60 per barrel, while the global economy it's in bad shape. Some readers may argue that the forecast of $60/barrel is too high. I bet that makes a lot of sense. To illustrate, before the financial crisis oil reached 140 dollars per barrel (July 2008), falling to 40 dollars per barrel at the end of the year. And in 2020, the collapse in demand sent the WTI benchmark into negative territory. Importantly, in the past the value of oil and gas companies has declined.
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Some say that values have already fallen, which is why prices have fallen. However, I don't think the oil is shrinking. In fact, WTI crude oil has dropped from $119/barrel to $95/barrel. But I don't think this is an argument for a thesis. In fact, I see it as a warning sign.
Investors should also keep in mind that Chevron is selling at a higher price than its peers – especially European oil.
For reference, Chevron trades at a GAAP P/E of x14. It is 28% more expensive than industrial pearls. Chevron's price to earnings ratio is about x6 to x4 to industry peers and represents a premium of 48%.
If investors compare Chevron's price with selected European players such as Shell, Total and Equinor, the higher price is clearly visible: Shell sells at a PE of less than X8, Equinor sells at a PE of less than X6 and TotalEnergies sells at a PE of less than X5. That said, Chevron's x14 P/E represents a 70-100% premium to its European peers. This expensive product is not necessary, for me. The argument is simple: European and American oil classes have the same share of oil prices, high and low.
End Of The Risen Threat
My view is based on the belief that the global economy will enter the recession in the second half of 2022 / the first half of 2023. That said, if the economy is stronger than expected, the demand for electricity and oil prices remain at a high level – which stops My Chevron.
In addition, the price of oil is closely related to Russia's war in Ukraine. JPMorgan has released a forecast that predicts oil will jump to $190 per barrel — and to a “stratospheric” $380 per barrel as the worst-case scenario. JPMorgan's note is based on the assumption that Russian oil price sanctions will be compensated by Russia's production/export cuts. At the same time, the above facts are surprising and support my thesis.
Furthermore, my opinion is that there is no structural difference between the petroleum products of Europe and the United States. However, this is not true because the rules are different. The fact is that the European Union is actively promoting green energy and American stocks are generally more expensive. But again, I'd say it's 80-100% bad.
I see oil prices falling, so I'm bullish on Chevron stock. In my opinion, investors are advised to buy stocks after the quarter, so they can benefit from good returns.
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However, I agree that investors may want to keep the data on energy companies as a currency hedge – given the 9.1% inflation rate in June. In addition, the conflict in Ukraine is not predictable, and energy costs will be high and problems arise.
Interestingly, European oil companies such as Shell, TotalEnergies and Equinor are still very low, not only based, but also in reality. As I said, I am selling my shares in Chevron (and other major US oil companies) and taking the assets of the European giants.
5 Y of experience as an investment analyst at a large BB bank. You are currently working on a CFA contract. Interest in Risk Assets (growth, diversification, new markets) Former Investor Express Affiliate
Disclosure: I/We have long positions in shares of SHEL, TTE through shares, options and other options. This article is written by me and reflects my opinion. I am not paid (except for alpha searches). I am not affiliated with any business or company that is mentioned in this article.
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