This week, I build on my last week’s blog post. In this video blog, I fundamentally analyze Chevron’s stock. I review Chevron’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment.
In the recent months, the entire oil and gas sector has been hurt due to low crude oil prices; Chevron is no exception. As value investors, it is important to review the company’s fundamentals before deciding to invest in any company. Hope you all find this 16 minute video blog interesting. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), etc.
After taking into account the current free cash flow of $13,198 million figure, a 2% growth rate of FCF (growth for the next 10 years), 10% discount rate, 3% long term growth rate (growth from 10 year mark to perpetuity), 1,873 million shares outstanding, and $23,691 million of long term debt, the DCF analysis yields us an intrinsic value of $80 per share. Using the current stock price of about $78 per share, and taking into account the past 10 years of free cash flows and future projects of free cash flows, we get the expected rate of return of 8.6%.
Timestamp
0:00 Introduction
0:38 Key Ratios Analysis
9:34 Discounted Cash Flow Analysis / Intrinsic Value
11:02 Expected Rate of Return Calculation
12:23 Conclusion
15:39 End
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References:
10K Annual Report: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: Chevron Corporation is an American multinational energy corporation. One of the successor companies of Standard Oil, it is headquartered in San Ramon, California, and active in more than 180 countries.
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