Dr.Sam

In this article I will analyze Chevron Stock based in its earning per Share (EPS) and its Price/Earning ratio.

Chevron main product is providing reliable, affordable and ever-cleaner energy for the millions around the world. That means its produce oil and sell it to the globe. Since its main product is oil, that means its business depend in oil prices, where its stock will increase when oil prices is high and decrease when oil prices is low. Before analyzing Chevron Stock and estimate how will it be in the five year period of investment, we need to see where will be the oil prices will be in the coming five years.

Prices of oil fluctuate in the next five years from 67$ to 79$, which mean there will be stability on the industry, and the forecasted price for Chevron in 2027 will have high accuracy.

Now we need to see How was Chevron EPS doing in the last five years. By browsing Chevron EPS for the last years , I found that Chevron EPS increased form 3.43$ in year 2017 until it reached to 17.58$ in 2022, with compound growth rate is 38.66%, except for one negative EPS which was in 2020 where the EPS was -6.11$ which is exceptional because of the COVID-19 crisis and will be eliminated.

Now we will estimate Chevron EPS in year 2027 to see how much will it be by applying the following equation:

FV=PV(1+i)ⁿ

• Where PV = Chevron EPS in year 2022 = 17.58$
• i = growth rate of Chervron EPS estimated above = 38.66%
• n = years of investment = 5 years in 2027

By plug in the data that we mentioned above in the formula, we end up with projected EPS for Chevron in 2027 which will be 90.11$.

Now that we have Chevron projected EPS for year 2027 which is 90.11$, all what we have to do is to find the lowest (P/E) ratio for Chevron in the last 5 years, and as we said in the previous analysis we are looing for the lowest (P/E) ratio because we are conservative investors.

The lowest (P/E) ratio for Chevron for the last five years was 14 which was in year 2020.

Now all what we have to do is to multiply the (P/E) ratio that mentioned above to the projected Chevron EPS for year 2027 to find the price of Chevron stock in year 2027 which is as following:

Chevron’s Stock Price In 2027 = (90.11)*(14)= 1261.54$

Chevron Stock traded from 37.6$ in 2000 until it reached 181 $ in 2022. That means it took it 22 years for the stock to increase 381.4%, which make it suspicious for us as investors to assume that Chevron’s stock will increase in five years from 181$ to 1261.54$ with growth rate equal to 596.98%.

Since the future of Chevron Stock price projected for year 2027 based in its EPS was so optimistic, I need to look for another way in ordered to get reliable projection for Chevron Stock in year 2027.

I am going to use sales and its growth for the last five years in order to end up with realistic projection for Chevron stock. That been said, Chevron sales had grown from 110.48 Billion‬ in year 2016 until it reached 156.29 Billion‬ in year 2021 with growth rate of 7.18%.

Then I need to project Chevron sales in 2027 by applying the same formula applied above to see how much will it be:

FV=PV(1+i)ⁿ

• Where PV = Chevron Sales in year 2021 = 156.29 Billion $
• i = growth rate of CAT EPS estimated above = 7.18%
• n = years of investment = 6 years in 2027

By plug in the data that we mentioned above in the formula, we end up with projected sales for Chevron in 2027 which will be 236.93 Billion.

Now that we have Chevron projected sales for year 2027 which is 236.93 Billion , all what we have to do is to find the lowest (P/S) ratio for Chevron in the last 6 years, and as we said in the previous analysis we are looing for the lowest (P/S) ratio because we are conservative investors.

The lowest (P/S) ratio for Chevron for the last five years was (1.04) which was in year 2018.

Now all what we have to do is to multiply the (P/S) ratio that mentioned above to the projected Chevron sales for year 2027 to find the price of Chevron’s stock in year 2027 which is as following:

Chevron’s Stock Price In 2027 = (1.04)*(236.93)= 246.41 $

It is fair to say that Chevron stock price will be trade at minimum as 246.41$ in 2027, based in the projected sales of this company in 2027 that we got earlier, which is more conservative than the price of Chevron that we got for year 2027 based in the projected EPS.

In conclusion, if I invested 10,000 $ in Chevron in Dec 2022 where the stock is traded at 181 $ I will end up with 13,613.81 $ with growth of 36.14%.