Wall Street analysts are downgrading Chevron Corp. (CVX.).US), as the company's employees are also preparing for possible layoffs, with a series of operational setbacks that will continue into 2024. In 2023, Chevron was hit by a reversal in production in two major U.S. oil-producing regions, Permian and Kazakhstan, with its $53 billion acquisition of rival Hess (Hes.).US) has also become less likely to be approved quickly.
Year-to-date, the company's share price is up 15%, lagging behind its four major rivals, British Petroleum (BP.).US), ExxonMobil (XOMUS), Shell (ShelUS) and Total (tteus)γIn the five years to December 2022, the company has had a lower return compared to the performance of similar companies. Seven Wall Street investment banks have cut Chevron's fourth-quarter earnings forecasts by an average of 12% over the past 30 days, according to investment firm LSEG. None of the 15 companies tracked by LSEG raised their forecasts.
According to LSEG, Chevron's profit forecast for 2024 has been lowered by an average of 103%, to 14$17 shares. Earnings estimates for its larger US rival ExxonMobil have also been downgraded, but by less than 4%. Citibank analyst Alastair Syme said the valuation premium that investors have historically given Chevron is based on good operational delivery and capital allocation. He lowered his price target on the company to $148 from $170 this month, with a neutral rating.
Chevron will be stormy in 2024
Mr Syme said it would "likely take time" to restore investor confidence in the company's operational objectives, describing 2024 as "a year of stagnant growth". UBS analyst Josh Silverstein said that the first half of 2024 was "muddyed by mergers and acquisitions";This month, he lowered Chevron's price target to $185 from $194. Despite this, he rated the company at ** because the company's "share price is already discounted" and there will be new oil production after the second quarter of 2024.
Chevron's chief financial officer, Pierre Breber, warned employees in an email this month that the company's oil and gas production, refinery operations and carbon reduction projects were all below plan. "We can β and we must β do better," he said. His wording was unusually harsh, shocking some employees, who saw it as a sign that the company was preparing to cut costs and lay off employees to improve its performance in 2024.
At the same time as Breber's reprimand, U.S. antitrust regulators again demanded information from Breber about the acquisition of Hess. Michael Wirth, chief executive officer of Xueflong, said the requirement meant the completion of the deal "will be extended further this year", while he hopes to close in the first quarter. The delay will delay the increase in production that Chevron will bring to Hess β about 400,000 barrels per day of oil and gas.
In October, Wirth revealed that Chevron's massive 260,000-barrel-per-day expansion plan for oil projects in Kazakhstan had been delayed for more than six months and cost more than expected. Compared to 2023, the facility's production will fall by 50,000 barrels per day due to maintenance and equipment replacement. In the Permian shale field in the United States, Chevron's production in the third quarter fell 2% compared with the second quarter. But executives say they expect a 10 percent year-on-year increase for the full year.
In August, the company completed the acquisition of shale oil producer PDC Energy Inc, which increased Chevron's U.S. production by 2850,000 barrels per day. It reiterates the previous guideline of a 3% annual increase in production, which is now on a higher basis. Still, Bank of America analyst Doong Leggate said the "recent underperformance" "makes the stock a potential darling among global oil majors in 2024."