Why Chevron Stock Is Slumping Today

The Motley Fool
The Motley Fool

What happened

Shares of Chevron (NYSE: CVX) had fallen about 5% by 10:30 a.m. ET on Friday, erasing more than $5 billion of market value. The culprit was the oil giant's fourth-quarter results, which fell short of expectations.

So what

Chevron reported earnings of $5.1 billion, or $2.65 per share, for the fourth quarter. That came in well short of the analysts' consensus that the oil giant would post $3.12 per share in profit.

Image source: Getty Images.

Several issues weighed on Chevron's results. Oil and gas production declined by 5% to 3.12 million barrels of oil equivalent per day, driven in part by the loss of production licenses in Indonesia and Thailand. That hurt its international oil and gas earnings. The company also reported lower earnings from its chemicals and refining segments and experienced some timing issues in its liquefied natural gas (LNG) business.

That weaker-than-expected result masked what was a strong year for Chevron. It posted $15.6 billion in profit, its best year since 2014 and an enormous improvement from the $5.5 billion loss it recorded in 2020.

Unfortunately, the company is facing several headwinds that could continue affecting its results in 2022, despite higher oil prices. In particular, it sees its total output falling by 3%, driven by the contract expirations in Indonesia and Thailand.

On a more positive note, Chevron expects to return more cash to shareholders this year. It recently increased its dividend by 6% -- the 35th straight year of dividend growth -- and expects to repurchase $1.25 billion in shares during the first quarter.

Now what

Chevron's stock is cooling off after recently hitting an all-time high on sky-high expectations for its fourth-quarter results. While it's facing some near-term production headwinds, the company appears poised to generate an enormous amount of cash this year if oil prices remain high. That's giving it the funds to improve its balance sheet and return more money to shareholders, which could produce attractive returns this year if oil remains elevated.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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