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Chevron Stock Price is Undervalued; Dividend Growth is Safe

Chevron (NYSE: CVX) stock price performance remained strong despite the significant drop in oil prices during the last quarter. Its closest competitor, ConocoPhillips, has lost 19% of value year to date. On the other hand, Chevron stock price rose 4% since the start of this year.

CVX Chevron Corporation daily Stock Chart

Its stock is currently trading slightly below from 52-weeks high of $127 a share. Fortunately, Chevron stock price is undervalued when compared to the industry average. The stock also looks underappreciated based on financial numbers, operational performance, and cash returns.

Chevron stock price is trading well below the industry average valuations. Its price to sales ratio 1.46 and price to earnings ratio of 15 is down from the industry average of 2.12 and 20.26 times, respectively. Its price to book ratio of 1.42 is well below from the industry average 3.06.

Chevron Stock Price is...

On the flip side, its financial numbers are adding to investors sentiments. The company has generated earnings of $4.3 billion in the latest quarter. Its second-quarter total production of 3.08M boe/day increased by 9.1% Y/Y. The growth in production is supported by the growth of 8.1% in net liquids production and a 10.7% increase in natural gas output. Its production from Permian Basin grew 50% to 421K bbl/day.

Our strong financial and operational results reflect consistent execution, allowing us to pay our dividend, fund our attractive capital program, further strengthen our balance sheet and return surplus cash to our shareholders,’ said Michael Wirth, Chevron’s chairman of the board and chief executive officer.

Chevron Stock Price is...

Chevron has generated operating cash flow of $8.8 billion in the second quarter while it’s capital expenditure was standing around $3.5 billion. Thus, the company was left with $5.1 in free cash flow compared to dividend payments of $2.3 billion.

The huge gap in free cash flows and dividend payments allowed the company to repurchase $1 billion of common stock in the second quarter. The company expects to buyback $1.25 billion of stock in the third quarter this year. Overall, several catalysts are supporting Chevron stock price upside momentum.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.