Chevron Corporation (CVX): Three Things to Know Before You Buy Stock

As one of our largest oil companies, Chevron Corporation (NYSE:CVX) is a company you’ve probably heard of before. In fact, given what you’re paying at the pump these days, and all the talk about oil and natural gas, you just might be thinking about buying a few shares of its stock. Before you make that purchase, there are three core areas to its business performance that you need to know a little more about.

Production growth
Topping the list is Chevron Corporation (NYSE:CVX)’s ambitious plan to grow its oil and gas production by 1 million barrels of oil equivalent per day, or MMBOED, by 2017. That would put the company’s overall total daily production of 3.3 MMBOE in 2017. That’s an ambitious goal, but it would still be a far cry from Exxon Mobil Corporation (NYSE:XOM) overall projected production of 4.8 MMBOED by that time. What is different is the rate of growth.

Exxon Mobil Corporation (NYSE:XOM), for example, expects to add only 600,000 BOED of production over that time frame, which equates to a growth rate of 2%-3% annually. Production growth is really hard to come by as oil companies are fighting an uphill battle against the natural decline of an oil and gas well. Even smaller exploration and production companies such as ConocoPhillips (NYSE:COP) need to spend billions of dollars just to grow production by 3%-5% each year. With that context, Chevron Corporation (NYSE:CVX)’s doing a really great job at growing its production, especially relative to its peers.

Return on capital
That being said, is this a growth at all costs company? Last year, Chevron Corporation (NYSE:CVX) earned 18.7% on the capital it employed to grow its business. That’s a terrific number, but it’s not the highest-returning major oil company. That honor goes to ExxonMobil, which enjoyed a return on capital employed of nearly 25%.

However, when you look at other oil majors such as BP plc (ADR) (NYSE:BP) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) you can see that Chevron Corporation (NYSE:CVX) really does shine. Last year BP plc (ADR) (NYSE:BP)’s return on capital employed was under 10%, while Shell’s was just slightly over 10%. Again, with that as context, Chevron really stands out as company that delivers not just growth, but profitable growth.

Shareholder returns
Growth is nice, but does it translate into shareholder returns? That’s the only reason you’d be buying its stock, so a history of returns something you’ll want to see. Again, the news here is good, as Chevron’s stock has vastly outperformed its peers:

Source: Chevron investor presentation.

Not only that, but just last year the company increased its dividend by 11% and bought back $5 billion in its own stock. Given the company’s projected future production growth and the returns that growth should generate, it’s fairly safe to say that investors should do well over the next few years.

The article 3 Things to Know Before You Buy Stock in Chevron originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of ConocoPhillips. The Motley Fool recommends Chevron and Total.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!