Chevron Jumps as Brent Crude Approaches $94

This article first appeared on GuruFocus.

Chevron (NYSE:CVX), the integrated oil-and-gas powerhouse, jumped approximately 0.8% to $207.39 Thursday afternoon as Brent crude charged to $93.81 per barrel. Oil has now climbed for five straight sessions. Restricted shipping through the Strait of Hormuz and stalled U.S.-Iran diplomacy are keeping supply fears hotand Chevron is cashing in.

The company entered this rally firing on every cylinder. Second-quarter earnings reached $12.1 billion, worldwide production surged 20% and return on capital employed hit 21%. Chevron also generated $19.7 billion in operating cash flow excluding working-capital movements and $15.4 billion in adjusted free cash flow. That is serious financial firepower before adding another dollar of geopolitical oil premium.

But investors are no longer buying Chevron cheaply. The chart places its $207.39 share price 30.78% above the $158.58 GF Value estimate, suggesting plenty of optimism is already baked in. The stock trades near 20 times trailing earnings, while any diplomatic breakthrough or reopening of Gulf shipping could knock crude prices lower fast. Chevron’s record production and refining muscle provide a strong floor. The war premium is supplying the rocket fuel.