chevron corporation -...

February 4, 2018

Chevron CorporationNYSE: CVX - Integrated Oil

OverviewCompany Scores Very Poor Fundamental Grades

MarketGrader currently has a SELL rating on ChevronCorporation (CVX), based on a final overall grade of39.1 scored by the company's fundamental analysis.Chevron Corporation scores at the 48th percentileamong all 5789 North American equities currentlyfollowed by MarketGrader. Our present rating dates toMarch 6, 2014, when it was downgraded from a HOLD.Relative to the Integrated Oil sub-industry, which iscomprised of 25 companies, Chevron Corporation'sgrade of 39.1 ranks 16th. The industry grade leader isHess Midstream Partners LP (HESM) with an overallgrade of 73.0. Relative to the Integrated Oil sub-industry which has returned 20.83% in the last sixmonths, the stock has performed poorly, up 19.88%,albeit better than the S&P 500's 16.21%. Please go topages two and three of this report for a completebreakdown of CVX's fundamental analysis.

Grade

39.1

Rated 'SELL' since Mar 6th, 2014, when itwas downgraded from 'HOLD'

Earnings

Last Earnings Release 02/02/2018

Last Qtr. Actual vs. Est. $0.73 / $1.23

Next Release 04/27/2018 $1.23

Year Ending 12/31/2016 $1.37

Year Ending 12/31/2017 $4.67

Quick Facts

Dividend Yield 3.64%

52 Wk High $133.60

52 Wk Low $103.04

Short Interest 1% of float

Market Cap $225.2B

$118.502/02/2018

Price, Rating and Sentiment History - 2 Years

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February 4, 2018


Growth B-

Value B+

Market Growth LT F

Market Growth ST A-

EPS Growth A+

Growth Potential C

Earnings Momentum D

Earnings Surprise D

Capital Structure A-

P/E Analysis F

Price/Book Ratio A+

Price/Cash Flow Ratio A-

Price/Sales Ratio C

Market Value A

39.1While Not Entirely Negative, Growth Indicators Show Several Signs ofWeakness

Chevron Corporation's recent jump in quarterly sales was a welcomeimprovement from a recent trend of long term decline. The companybooked $34.09 billion in revenue last quarter, 16.81% better than the$29.18 billion reported a year ago. By comparison, its $128.43 billion in12-month trailing revenue represents a 39.50% decline from thecomparable period ended three years ago in which the company had$212.28 billion in total sales. One or two more quarters of improvedresults will reverse Chevron Corporation's top line growth slide and likelyprovide a boost to its earnings growth as well. It also reported outstandingprofit growth last quarter from the year earlier period, contrasting with along term decline in full year profits, which we measure over a three year

period. It therefore appears that the company is in the process of reversing its long term trend of falling profits.Chevron Corporation's Third quarter profit jumped 52.14% to $1.95 billion from $1.28 billion (excludingextraordinary items) reported in the year earlier period; on the other hand, also including its first quarter results,its 12-month trailing net income dropped 68.60% to $6.50 billion from the $20.70 billion it had earned in the 12months ended three years earlier. The company's margins continued to expand at a strong pace in the latestquarter as it reported an average increase of 202.75% in EBITDA, operating and net margins compared to theyear ago period. However, this was a smaller increase than the one reported in the preceding quater.

Friday's announcement of last period's $0.73 in earnings per share came below the $1.23 per share consensusestimate of analysts following the company. Our Earnings Impact grade, which measures how investors react tothe announcement, will be updated after the next trading session since this indicator tracks the change in thestock price from one day before to one day after the report. However, notwithstanding investor's reaction to thereport, Chevron Corporation's latest announcement confirms a negative earnings surprise trend, as it has missedthe analysts' consensus estimate by an average of 2.72% in the last six quarters.

Positive Value Grades Should Be Considered in the Context of aGenerally Poor Fundamental Analysis

Chevron Corporation's shares trade currently at 24.45 times thecompany's 12-months' earnings per share, more than two times our"optimum" P/E of 7.50. This ratio is calculated by MarketGrader bylooking at the last five years' quarterly earnings, in 12-month rollingperiods, in order to determine their growth rate. On this account ChevronCorporation's earnings per share have fallen at an annualized rate of -18.29% during this time. Unless the company manages to translate itsrecent margin gains into much better Profitability grades this growth rateis unlikely to improve, putting downward pressure on the stock. Thestock's forward P/E of 19.50, based on estimates for the next fourquarters, is higher than the S&P 500's forward P/E of 15.20 but lower

than its trailing P/E. The lower multiple investors are paying for its future earnings compared to past earningsreflects how high expectations are for future earnings growth, which run ahead of expectations for the market as awhole. Considering the company's poor overall fundamentals this premium over the S&P appears risky and setsup the stock for a significant fall if future earnings disappoint.

Chevron Corporation's current market value is only 1.71 times its tangible book value, which excludes intangibleassets such as goodwill. This means investors are currently assigning very little value to the company's ongoingbusiness and its future earnings growth, especially considering that Chevron Corporation's intangible assetsrepresent only 10.32% of its total stockholders' equity. The stock's price to cash flow ratio of 12.39, based on the$9.57 in cash flow per share generated by Chevron Corporation. in the last four quarters, could be interpreted asinvestors' unwillingness to pay too much for the company's earnings prospects in light of its overall fundamentalweakness. Its shares also trade at 1.75 times trailing 12-month sales, a 63.95% premium to its industry averageof 1.07. Finally, from a value perspective, we look at how much bigger the company's market capitalization is thanits latest operating profits after subtracting taxes. From this perspective Chevron Corporation's market cap of$225.23 billion , which is only 8.84 times larger than its latest quarterly net income (plus depreciation), seems likean attractive valuation.

Revenue Qtrly. 09/30/2017 $34.1BRevenue Qtrly. Year Ago $29.2BRevenue 1 Yr. Chg. 16.81%Revenue 12 Mo. Tr. Latest $128.4BRevenue 12 Mo. Tr. 3Y Ago $212.3BRevenue 12 Mo. Tr. 3Y Chg. (39.5%)

Net Income Qtrly. 09/30/2017 $2BNet Income Qtrly. Year Ago $1.3BNet Income 1 Yr. Chg. 52.14%Net Income 12 Mo. Tr. Latest $6.5BNet Income 12 Mo. Tr. 3Y Ago $20.7BNet Income 12 Mo. Tr. 3Y Chg. (68.6%)

P/E Ratio 12 Mo. Tr. 09/30/2017 38.75Optimum P/E Ratio 7.50Forward P/E Ratio 19.5S&P 500 Forward P/E Ratio 15.20Price to (Tangible) Book Ratio 1.71Price-to-Cash Flow Ratio 12.39Price/Sales Ratio 1.75


February 4, 2018


Profitability D

Cash Flow B-

Asset Utilization C

Capital Utilization F

Operating Margins F

Relative Margins F

Return on Equity F

Quality of Revenues D

Cash Flow Growth D

EBIDTA Margin B

Debt/Cash Flow Ratio A

Interest Cov. Capacity A+

Economic Value F

Retention Rate F

39.1Very Poor Across-the-Board Profitability Indicators Reflect andUnderperforming Operation

Despite having earned $6.50 billion during the last 12 months, for adecent net profit margin of 5.06%, Chevron Corporation's profitabilityindicators are very poor. This is based on a very weak return on equity,an important component of our analysis and an operating margin thattrailed the industry average, both also based on 12-month trailing results.The Integrated Oil industry's average operating margin of 11.31% is102.49% higher than the company's 1.00% margin. Chevron Corporationhad a terrible return on equity of 4.43% in the last 12 months, a reflectionof very difficult business conditions. Incredibly this was actually animprovement from the return on equity of -1.02% based on the company'searnings for the 12 months ended a year earlier.

The company's capital structure is very conservative, which is prudent considering its weak return on equitydespite significant recent improvements. Its total debt is less than one third total shareholders' equity on thebalance sheet. Long term debt made up 18.85% of its total capital based on its latest financial reports. ChevronCorporation's $27.42 billion in twelve month trailing core earnings, or EBITDA, shows a remarkable increase of54.59% from the twelve months ended a year earlier, in which its core operations generated $17.74 billion.EBITDA is used to measure the company's true earnings power by including interest costs, income taxes,depreciation and amortization, all non-operating charges, which are nevertheless accounted for in several EPSand net income measures of our fundamental analysis.

While the Company's Cash Flow Indicators Are Mediocre They Don'tReveal Any Immediate Liquidity Problems

Chevron Corporation showed a small improvement in its quarterly cashflow during the latest period, in which it grew by 1.11% to $5.37 billionfrom the $5.31 billion reported in the same period last year. This issignificantly lower than the 34.03% growth in twelve month trailing cashflow, an indication of a sharp slowdown in the company's core operatingincome and overall business environment. The company reducedsignificantly its net debt relative to its cash flow in its most recentlyreported quarter compared to the same period a year before. Its latest netdebt to EBITDA ratio (with net debt being defined as total debt minuscash on hand) was 4.35, based on $35.32 billion in net debt and $8.12billion in EBITDA, compared to a year earlier ratio of 6.94, a 37.37%

reduction. This is a positive step for the company towards being self-reliant in paying down debt with the cashflow generated from operations or possibly increase leverage to fuel future growth. Its cash on hand also fell inthe last twelve months to $6.65 billion held at the end of last quarter, a 13.27% drop from the year earlier quarter.It is therefore apparent Chevron Corporation has been using its cash reserves to deleverage as its total debt as apercentage of total capital was reduced to 22.24% last quarter from 23.70% in the same period a year before. Assuch, despite having less cash on hand now, the company's liquidity has improved significantly in the last year.

MarketGrader's Economic Value indicator measures the company's ability to generate a true economic profit byanalyzing its returns not only after accounting for the costs of operating the business but also the cost of capital,both debt and equity. Based on its operating income in the last twelve months, Chevron Corporation generated a0.71% return on $180.79 billion of invested capital. This includes common and preferred equity as well as longterm debt. However, the company's cost of capital over the last year actually exceeded the return, mostlybecause of its cost of equity. Chevron Corporation's total after tax cost of capital was 8.41%, resulting from a8.01% weighted cost of equity and 0.40% weighted cost of debt. Subtracting these costs from the 0.71% return oncapital results in a negative economic value added, or EVA, of -7.70%. This means that the company's operatingresults are insufficient to cover its total costs, returning nothing to shareholders who have tied up their capital in itsstock. The company increased its quarterly common dividend on September 30, 2017 by 0.93%, to $1.08 ashare from $1.07 . It has paid a dividend for at least 41 years and, based on this latest payout, the stock iscurrently yielding 3.64%. The $8.12 billion spent by Chevron Corporation in the last 12 months making commondividend payments seems alarming considering it accounted for 44.73% of total cash flow and 124.91% of totalafter-tax earnings. The fact that this payout ratio is actually slightly lower than the 138.78% of earnings spent ondividends in the 12 months ended just a quarter before, combined with the company's poor fundamentals,suggests it might be facing a liquidity squeeze and will need to reduce its payout significantly before it completelyundermines its balance sheet.

Cash Flow Qtrly. 09/30/2017 $5.4BCash Flow Qtrly Year Ago $5.3BCash Flow 1 Yr. Chg. 1.11%Cash Flow 12 Mo. Tr. Latest $18.1BCash Flow 12 Mo. Tr. 3Y Ago $35.4BCash Flow 12 Mo. Tr. 3Y Chg. (48.78%)Free Cash Flow Last Qtr. $2.2B

Economic Value

Total Invested Capital $188.7BReturn on Inv. Capital 0.71%Weighted Cost of Equity 8.01%Weighted Cost of Debt 0.40%Total Cost of Capital 8.41%Economic Value Added (7.70%)


February 4, 2018

Chevron CorporationNYSE: CVX - Integrated Oil 39.1ProfileChevron Corp. is an integrated energy company. It operates through its subsidiaries, which areengaged in petroleum operations, chemicals operations, mining operations, power generation andenergy services. The company operates through two reportable segments: Upstream andDownstream. The Upstream segment operations consist primarily of exploring for, developing andproducing crude oil and natural gas; liquefaction, transportation and regasification associated withliquefied natural gas (LNG); transporting crude oil by major international oil export pipelines;processing, transporting, storage and marketing of natural gas; and a gas-to-liquids project. TheDownstream segment operations consist primarily of refining of crude oil into petroleum products;marketing of crude oil and refined products; transporting of crude oil and refined products by pipeline,marine vessel, motor equipment and rail car; and manufacturing and marketing of commoditypetrochemicals, plastics for industrial uses, and fuel and lubricant additives. All other activities of thecompany include mining operations, power generation businesses, worldwide cash management anddebt financing activities, corporate administrative functions, insurance operations, real estateactivities, energy services, and alternative fuels and technology. The company was founded onJanuary 27, 1926 and is headquartered in San Ramon, CA.

Key Facts:6001 Bollinger Canyon RoadSan Ramon ,CA 94583-2324Phone:www.chevron.com

Biggest Company in Sub-IndustryExxon Mobil CorporationGrade 42.7Market Cap:$358.16 billion

Smallest Company in Sub-IndustryPetrus Resources Ltd.Grade 23.4Market Cap:$66.73 million

MarketGrader Dilution Analysis

Impact of Change in Shares on EPS - Q1 2018

Dilution Summary

*EPS Latest $1.03

*EPS Year Ago $0.68

EPS Change 1 Yr. 51%

C. Shares - Latest(M) 1,896

C. Shares - Yr Ago(M) 1,883

C. Shares - 1Yr Chg. 1%

EPS if Yr. Ago Shares $1.04

EPS Chg. if Yr. Ago 52%

EPS Loss from Dilution ($0.01)

*Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company.

IncomeStatement

Last Qtr(09/2017)

12 Mo.Trailing

Revenue $34.1B $128.4B

Op. Income $583M $1.3B

Net Income $2.0B $6.5B

*EPS $1.03 0

*Earnings per share are based on fully diluted net income per shareexcluding extrodinary items. This number may not match theheadline number reported by the company.

Balance Sheet Latest

Total Assets $255.2B

Total Debt $42.0B

Stockholders Eq. $146.7B

All numbers in millions except EPS

Ratios

Price/Earnings (12 mo. trailing) 38.75

Price/Tangible Book 1.71

Price/Cash Flow 12.39

Price/Sales 1.75

Debt/Cash Flow 231.28

Return on Equity 4.43%

Gross Margin (12 mo. trailing) 14.77%

Operating Margin (12 mo. trailing) 1.00%

Net Profit Margin (12 mo. trailing) 5.06%Total Assets $255.2BIntangible Assets $15.1BLong Term Debt $34.1BTotal Debt $42.0BBook Value $146.7BEnterprise Value $35.3B

'13 '14 '15 '16 '17

Qtr 1 0.90 1.00 1.07 1.07 1.08

Qtr 2 1.00 1.07 1.07 1.07 1.08

Qtr 3 1.00 1.07 1.07 1.07 1.08

Qtr 4 1.00 1.07 1.07 1.08


February 4, 2018

Chevron CorporationNYSE: CVX - Integrated Oil 39.1Top Down Analysis

# Ticker Grade Sentiment Name Price Next EPS

1 NBLX 86.56 P Noble Midstream Partners LP $56.47 11/01/2017

2 RMP 81.52 P Rice Midstream Partners LP $21.39 11/09/2017

3 EQM 80.78 N EQT Midstream Partners LP $73.43 02/01/2018

4 TGS 79.70 N Transportadora de Gas del Sur SA $21.77 11/08/2017

5 CRZO 79.18 N Carrizo Oil & Gas, Inc. $19.06 02/27/2018

6 PSD.CA 78.78 N Pulse Seismic Inc. $3.18 11/10/2017

7 MTDR 78.12 P Matador Resources Company $31.18 11/08/2017

8 SRCI 76.24 N SRC Energy Inc $9.29 02/22/2018

9 VLP 75.86 P Valero Energy Partners LP $43.43 04/27/2018

10 HESM 73.00 N Hess Midstream Partners LP $21.60 11/29/2017

250 CVX 39.05 P Chevron Corporation $118.58 04/27/2018

# Ticker Grade Sentiment Name Price Next EPS

1 HESM 73.00 N Hess Midstream Partners LP $21.60 11/29/2017

2 SBOW 69.25 N SilverBow Resources Inc $30.50 02/27/2018

3 GDP 60.86 N Goodrich Petroleum Corporation $11.51 02/21/2018

4 SU 58.76 P Suncor Energy Inc. $35.26 10/27/2017

5 SU.CA 56.90 N Suncor Energy Inc. $43.81 10/27/2017

6 SNP 56.71 P China Petroleum & Chemical Corporation $86.51 03/23/2018

7 TOT 54.13 P Total SA Sponsored ADR Class B $57.28 10/30/2017

8 RDS.B 46.40 P Royal Dutch Shell Plc Sponsored ADR $68.81 04/26/2018

9 RDS.A 46.22 P Royal Dutch Shell Plc Sponsored ADR $67.30 04/26/2018

10 PTR 46.20 P PetroChina Company Limited Sponsored $78.58 10/31/2017

16 CVX 39.05 P Chevron Corporation $118.58 04/27/2018

Energy

Stocks in Sector: 530Buys: 64 (12.08%)Holds: 66 (12.45%)Sells: 400 (75.47%)

No. of stocks at:52-Wk. High: 952-Wk. Low: 47Above 50 & 200-day MA: 195Below 50 & 200-day MA: 193

Integrated Oil

Stocks in Sub-Industry: 25Buys: 3 (12.00%)Holds: 4 (16.00%)Sells: 18 (72.00%)

No. of stocks at:52-Wk. High: 052-Wk. Low: 3Above 50 & 200-day MA: 12Below 50 & 200-day MA: 6

1. Price Trend. A+ 2. Price Momentum. D

3. Earnings Guidance. B- 4. Short Interest. A-7.3

Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related tosuch securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does nothave regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investmentstrategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value mayrise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. MarketGrader does not make marketsin any of the securities mentioned in this report. MarketGrader does not have any investment banking relationships. MarketGrader and its employees may have long/short positions or holdings in the securities or other related investments of companies mentionedherein. Officers or Directors of MarketGrader.com Corp. are not employees of covered companies. MarketGrader or any of its employees do not own shares equal to one percent or more of the company in this report.


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