5 Things You Should Know From Chevron's (CVX) Q4 Earnings

Integrated oil major Chevron (NYSE:CVX) had a pleasant surprise in store for investors when it reported both quarterly and full-year results on Friday. The company reported a comprehensive beat in the fourth quarter of 2018 on the back of higher revenues, record production and strong oil price realizations. Significantly lower net charges due to the absence of a tax outgo of $2.47 billion also aided overall results.

Chevron reported earnings per share of $2.06, surpassing the Zacks Consensus Estimate of $1.87 and also significantly improving from the year-ago profit of 73 cents. Quarterly revenues of $42.3 billion also beat the Zacks Consensus Estimate of $41.6 billion and were up 12.5% year over year.

While the numbers explain the stock's impressive performance (up more than 4%) following its earnings release, we take a closer look at the results to gain further insight. Here are five key things you need to know from Chevron's earnings update.

Profit Jumps, as Upstream Earnings Rise: Chevron saw its profit soar from $9.2 billion in 2017 to $14.8 billion last year. In particular, the company reported $13.3 billion of earnings from its upstream business, compared with $8.2 billion in the previous year.

Maintains Dividend Streak: Chevron maintained its dividend growth streak, marking the 32nd consecutive year of payout hike. The company hiked its dividend by 7 cents per share, giving investors another reason to cheer. Chevron declared a dividend of $1.19 per share, payable on Mar 11, 2019 to its shareholders as of Feb 15, 2019.

Growing Free Cash Flow & Dividend Safety: Chevron’s free cash flow has gone up significantly. In 2018, the company generated $30.6 billion of cash from operating activities while shelling out $13.8 billion on capital expenditures for record free cash flow of $16.8 billion. During the same period, Chevron paid out $8.5 billion as cash dividends to its shareholders. In other words, the company’s dividend appears safe for the foreseeable future.

Using $4.76 as the dividends to be received in the next 12 months (after taking into consideration the recent hike) and based on 1.91 billion diluted shares outstanding, the total payout comes to a little over $9 billion annually, much lower than the free cash flow.

Debt Down: Chevron's total debt is currently around $34.5 billion, down from $38.8 billion a year ago. Importantly, the company's year-end debt ratio was 18%, improving from 20.7% at year-end 2017.

Impressive Production Growth, Led by Permian: Production at Chevron, the nation's largest oil and gas producer, remains strong. The company said its 2018 production was 2,930 thousand oil-equivalent barrels per day (MBOE/d), up 7.4% from a year ago and up 13% over the 2017 output.

The company’s substantial Permian holdings of 2.2 million net acres have already realized production growth of 71% in the past year with Chevron targeting a CAGR of 30-40% through 2020. Investors should also note that Chevron's Permian production of 377,000 barrels per day in the fourth quarter was up significantly from the 205,000 barrels per day in last year's corresponding period.

Zacks Rank & Stock Picks

Chevron, the world's third-biggest oil major based on market capitalization behind ExxonMobil (NYSE:XOM) and Royal Dutch Shell (LON:RDSa) RDS.A currently retains a Zacks Rank #3 (Hold).

A better-ranked player in the energy space is Sunoco LP (NYSE:SUN) , which carries a Zacks Rank #2 (Buy). This downstream operator has an expected earnings growth of 71.9% 2019.

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

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