Thursday, April 17, 2014

Should Investors Be Worried About Chevron’s Profit Warning?

This article was originally published by GuruFocus on April 10, 2014

By Sarfaraz A. Khan. Research assistant: Gohar Yousuf

Yesterday, America’s second biggest oil and gas company Chevron (CVX) issued a profit warning for the first quarter of the current fiscal year. Does this mean that the investors should start panicking?

Chevron’s shares have risen by just 1.3% in the last 12 months, trailing behind its rival and America’s biggest energy company Exxon Mobil (XOM) which his up more than 9% in the corresponding period.

As compared to Exxon Mobil, Chevron is cheaper (in terms of price-to-earnings ratio) and offers a higher yield of 3.36%.

The company will report its quarterly results on May 2, nearly three weeks from now. The business is expecting a dip in profits from the previous quarter on the back of higher currency conversion costs and an increase in impairment charges. This, however, is a short term hiccup as the company could grow its production to 3.1 million barrels per day from less than 2.6 million barrels per day currently.

Chevron is expecting a sequential drop in profits for the current fiscal year on the back of foreign currency fluctuations and impairment charges.

In the first two months of the current fiscal year, Chevron’s production has come under pressure from severe weather conditions in some regions, such as Kazakhstan, Canada, and the U.S.
However, an increase in demand from Thailand and an uptake in production from Angola’s LNG facility could offset some of the decline coming from adverse weather.

In the first quarter, Chevron will ... read full article at GuruFocus