Chevron Corporation

Chevron Corporation (NYSE: CVX) is an integrated energy entity with exploration, production, and refining operations globally.

Investment Highlights – HOLD at USD 101.23

• The improved market conditions coupled with merger synergies and transformation benefits, reported strong earnings in Q2 FY21.
• Due to solid financial and operational performance, free cash flow was the highest in two years. It was also supported by lower capital spending, and therefore, the Company will resume share repurchases at an expected rate of US$2-3 billion per year.
• From a technical standpoint, CVX’s stock price is trading above the 10-day EMA (USD 101.17), reflecting a bullish price momentum. Adjacently, the momentum oscillator 14-day RSI (47.67) is still in the oversold zone.
• On forward 12-month, EV/Sales valuation multiple is lesser, while dividend yield is higher than the median of the Energy sector.

Key Risks

• The resurgence in Covid-19 cases due to the Delta variant can keep the demand outlook subdued and create operational challenges.
• China and Japan have reintroduced restrictions to curb the infection rate of Covid-19, which can also impact the oil demand.
• The supply hikes from OPEC+ can leave the oil market in deficit in 2021.

Recent News

Leadership Appointment: CVX appointed Eimear Bonner as vice president, while he will continue as President of Chevron Technical Center.

Q2 FY21 Financial Highlights (for the three months ended 30 June 2021, as of 30 July 2021)

 (Source: Company Website)

• During Q2 FY21, Chevron reported earnings of US$3.1 billion, against a loss of US$8.3 billion in Q2 FY20.
• The earnings also included US$43 million as the favourable impact of foreign currency.
• Similarly, the Company reported adjusted earnings of US$3.3 billion in Q2 FY21, compared to an adjusted loss of US$2.9 billion in Q2 FY20.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (Illustrative)

Conclusion

Chevron has curtained the capital spending by 32% in H1 FY21 from a year ago. The Company also continued to pursue the development of renewable and lower carbon fuels. During the Q2 FY21, CVX also settled pension costs of US$115 million and sold assets of US$120 million, which supported the cash flows. The Company has got a boost with favourable sales price of natural gas and crude oil. The stock made a 52-week High and Low of USD 113.11 and USD 65.16, respectively.

Based on improved market conditions, robust financials, share repurchase resumption, solid free cash flow, supported by the valuation conduced above, we have given a "HOLD" stance on Chevron Corporation at the closing market price of USD 101.23 (as of 5 August 2021), while we look forward to fresh buying once short-term uncertainty subsides.

Halliburton Company

Founded in 1919, Halliburton Company (NYSE: HAL) provides products and services to the energy industry. It services include drilling and formation evaluation, managing geological data, optimizing production, and locating hydrocarbons.

Investment Highlights – HOLD at USD 19.48

• HAL is the only integrated service provider in North America and having strong international business. It also has unique growth opportunities in the artificial lift and chemical business.
• The Company is committed to delivering industry leading returns, strong free cash flows, and capital efficiency.
• During Q2 FY21, the Company reported a free cash flow of US$265 million and cash flow from operating activities of US$409 million.
• From a technical standpoint, HAL’s stock price is trading close to its lower Bollinger Band, while 14-day RSI (37.76) is reiterating its oversold position.
• HAL’s stock price has surged over 31% in the past year, showing outperformance against the benchmark NYSE index.

Key Risks

• The resurgence in Covid-19 cases can increase the Company’s operating costs, since supply chain disruption, labor absenteeism, and input prices continued to distort the market.
• If the OPEC+ countries don’t agree on supply limits, it can significantly impact the prices of oil and gas markets.

Q2 FY21 Financial Highlights (for the three months ended 30 June 2021, as on 23 July 2021)

 (Source: Company Website)

• Halliburton announced a net income of US$227 million in Q2 FY21, as compared to a net income of US$170 million in Q1 FY21.
• The Company also increased revenue by 7% year-on-year, as both North America and international markets continued to improve.
• Hal also demonstrated solid cash flow generation with positive activity momentum across North America and international markets.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

HAL demonstrated solid growth across all divisions in Q2 FY21. The completion and production revenue in Q2 FY21 was US$178 million higher than Q1 FY20. The growth was driven by increased activity across multiple product service lines. The solid free cash flows also reflected the effectiveness of strategy and strong customer demand. The drilling and evaluation revenue also surged 5% year-on-year in Q1 FY21, which offset the reduced software sales globally. In a nutshell, the Company has sustainable competitive advantage, and integrated service portfolio to generate industry-leading returns. The stock made a 52-week High and Low of USD 25.00 and USD 10.60, respectively.

Based on the new business opportunities, strong free cash flows, profitable growth across divisions, supported by the valuation conducted above, we have given a "HOLD" stance on Halliburton Company at the closing market price of USD 19.48 (as of 5 August 2021), while we look to fresh buying when short-term uncertainty fades away.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.   

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