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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


October 30th 2009 Chevron
Industry: Oil
Price as of 10/30: $76.54

After two down weeks in a row, the market is in the middle of a correction. The earnings keep coming in better than expected which is good for the long term. The commodity sector has rallied along with the broader markets for the last six months. China has been a big buyer of virtually all commodities as their economy has rebounded. Oil has pushed higher, hitting $80 a barrel recently. This week we'll feature the nation's second largest U.S. oil and gas company, Chevron. Chevron reported better than expected earnings this past week, easily beat estimates. The company continues to execute during good times and bad. The stock has performed nicely from the March lows, but still has plenty of upside. An analyst at Soleil recently upgraded the stock with a $100 price target. The company also provides a good dividend yield and goes ex-dividend in two weeks.
Friday morning, Chevron reported earnings of $3.44 billion or a $1.72 a share beating estimates by 25 cents. Revenues fell 40.9% year over year to $46.63 billion, slightly missing consensus estimates. Even though Chervon beat estimates, earnings came in down 51% from last year due to a steep decline in oil and natural gas prices. Anemic margins in the refining business also hurt results. Chevron offset part of the sharp drop in energy prices in the past year by increasing its oil output and cutting costs during the quarter. Management at Chevron indicated that net oil-equivalent production this quarter was nearly 11% higher than the same quarter a year ago. This operational success helped mitigate a decline in earnings that was driven by sharply lower prices for crude oil and natural gas. In their downstream operations, Chervon continued to experience weak margins on the sale of gasoline and other refined products. Weak demand and plentiful supply affected all our major markets. Chevron's refinery reliability remains high, and they continue to focus on the safe and efficient operation of their network. The analyst at Credit Suisse was impressed with the results indicating it was Chevron's best results in a long time.
Even with the recent run up, Chevron's stock is still attractive. The stock trades for 10 times earnings, 0.85 times sales, and 1.7 times book value of $44 a share. As mentioned, the analyst at Soleil recently placed a buy recommendation on Chevron with a buy and a $105 target. The analyst said he expects crude oil and natural gas production volumes and higher commodity prices to significantly increase Chervons' earnings and return on capital employed. Also mentioned, the company goes ex-dividend on November 11th for 68 cents. That's a nice dividend yield of 3.6% for a blue chip S&P 500 oil company.