Chevron has delivered strong share price gains over the past five years, rising 138.2%. With the stock recently closing at US$217.73, the big question for investors is whether the company’s cash flows can actually support this higher price.
To answer that, we look at Chevron’s efforts to reshape its asset base. The company plans to divest its interests in Hess Midstream and DJ Basin assets, while also cutting costs in Bakken midstream operations. These moves aim to protect cash flow margins and make future cash generation more reliable.
For those who prefer focusing on earnings, Chevron’s 20.7x P/E ratio tells a different valuation story than just looking at the share price.
When we apply a Discounted Cash Flow (DCF) model, the picture looks promising. Chevron’s latest twelve-month free cash flow sits at about $27.2 billion, and projections show cash flows growing steadily into the 2030s. Discounting these future cash flows back to today suggests the stock’s intrinsic value is substantially higher than the current price of US$217.73.
Furthermore, the potential rollback of Biden-era methane rules could lower compliance costs for large oil and gas producers, which would only help Chevron’s cash generation.
Before deciding if Chevron fits your portfolio, it is worth noting that our research has flagged one warning sign. You can also share your own view on Simply Wall St’s community page to see how your assumptions compare to others.
