Is Chevron Attractively Priced After Recent Share Price Softness?
- If you are wondering whether Chevron, at around $148 a share, is a bargain or a value trap, you are not alone. This breakdown will help you see where the numbers actually point.
- Despite a solid 105.5% return over five years, the stock is down 1.2% over the last week, 4.2% over the last month, and about 1.0% over the past year, which has some investors questioning whether this is a temporary pause or a shift in sentiment.
- Recent moves in energy prices, shifting expectations around interest rates, and ongoing geopolitical tensions have all contributed to a more cautious stance toward oil majors such as Chevron. At the same time, long term themes such as global energy security, disciplined capital spending, and the gradual energy transition are keeping Chevron firmly on many investors' watchlists.
- On our framework, Chevron scores a 3/6 valuation check score, suggesting it looks undervalued on some metrics but not convincingly cheap across the board. In the sections that follow, we unpack the main valuation approaches, then finish with a more holistic way to think about what the stock might really be worth.
Find out why Chevron's -1.0% return over the last year is lagging behind its peers.
Approach 1: Chevron Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a company is worth by projecting the cash it can return to shareholders in the future and then discounting those cash flows back to today.
For Chevron, the model starts with last twelve months Free Cash Flow of about $16.3 billion and uses analyst forecasts for the next few years, then extends those forecasts further into the future. By 2029, Free Cash Flow is projected to reach roughly $27.2 billion, with additional gradual growth assumed out to 2035 based on Simply Wall St extrapolations.
Those future cash flows are discounted back to today using a required return for equity investors, producing an estimated intrinsic value of around $335 per share. Compared with a current share price of about $148, the DCF suggests Chevron is trading at roughly a 55.7% discount to its estimated fair value. This implies that the market is pricing in a much weaker long term outlook than this model assumes.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Chevron is undervalued by 55.7%. Track this in your watchlist or portfolio, or discover 900 more undervalued stocks based on cash flows.
Approach 2: Chevron Price vs Earnings
For a mature, consistently profitable business like Chevron, the price to earnings ratio is a useful way to gauge how much investors are paying for each dollar of current profit. It ties the valuation directly to bottom line performance, which tends to be more stable than revenue in a cyclical sector like oil and gas.
What counts as a normal PE depends on how the market views a company’s growth prospects and risk profile. Faster, more predictable growth usually commands a higher multiple, while more volatile or uncertain earnings deserve a discount. Chevron currently trades on a PE of about 23.4x, slightly above the peer average of 22.4x and well above the broader Oil and Gas industry average of 13.5x. This suggests investors already ascribe a quality and scale premium.
Simply Wall St’s Fair Ratio framework goes a step further by estimating the PE Chevron should trade at, given its growth outlook, profitability, size, sector, and risk, which in this case is 25.2x. Because this approach is tailored to Chevron’s specific fundamentals, it is more informative than blunt peer or industry comparisons. With the stock trading below its Fair Ratio, the PE perspective suggests Chevron is modestly undervalued rather than expensive.
Result: UNDERVALUED
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1447 companies where insiders are betting big on explosive growth.
Upgrade Your Decision Making: Choose your Chevron Narrative
Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a simple way to attach a story (your view of Chevron’s future revenue, earnings and margins) to the numbers. You can then link that story to a financial forecast and then to a fair value, and see on Simply Wall St’s Community page how different investors, using the same data that powers millions of decisions on the platform, turn news, earnings and industry shifts into dynamic updates to their Chevron Narratives. These Narratives compare Fair Value to today’s price and help investors decide whether to buy, hold or sell. For example, one investor might build a very bullish Chevron Narrative around strong free cash flow, disciplined capital allocation and dividend growth that supports a Fair Value well above the current price, while another might create a more cautious Narrative that assumes slower demand, execution risks and tighter margins, leading to a much lower Fair Value and a very different decision.
Do you think there's more to the story for Chevron? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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