Stock Analysis on Net
Stock Analysis on Net

Chevron Corp. (NYSE:CVX)

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Chevron Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 15.02%
01 FCFE0 15,725
1 FCFE1 15,569 = 15,725 × (1 + -0.99%) 13,535
2 FCFE2 15,805 = 15,569 × (1 + 1.52%) 11,946
3 FCFE3 16,441 = 15,805 × (1 + 4.02%) 10,804
4 FCFE4 17,515 = 16,441 × (1 + 6.53%) 10,007
5 FCFE5 19,099 = 17,515 × (1 + 9.04%) 9,487
5 Terminal value (TV5) 348,357 = 19,099 × (1 + 9.04%) ÷ (15.02% – 9.04%) 173,030
Intrinsic value of Chevron Corp. common stock 228,808
 
Intrinsic value of Chevron Corp. common stock (per share) $127.32
Current share price $159.60

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Chevron Corp. common stock βCVX 1.14
 
Required rate of return on Chevron Corp. common stock3 rCVX 15.02%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCVX = RF + βCVX [E(RM) – RF]
= 4.65% + 1.14 [13.79% – 4.65%]
= 15.02%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Chevron Corp., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends 11,336 10,968 10,179 9,651 8,959
Net income (loss) attributable to Chevron Corporation 21,369 35,465 15,625 (5,543) 2,924
Sales and other operating revenues 196,913 235,717 155,606 94,471 139,865
Total assets 261,632 257,709 239,535 239,790 237,428
Total Chevron Corporation stockholders’ equity 160,957 159,282 139,067 131,688 144,213
Financial Ratios
Retention rate1 0.47 0.69 0.35 — -2.06
Profit margin2 10.85% 15.05% 10.04% -5.87% 2.09%
Asset turnover3 0.75 0.91 0.65 0.39 0.59
Financial leverage4 1.63 1.62 1.72 1.82 1.65
Averages
Retention rate -0.14
Profit margin 6.43%
Asset turnover 0.66
Financial leverage 1.69
 
FCFE growth rate (g)5 -0.99%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to Chevron Corporation – Cash dividends) ÷ Net income (loss) attributable to Chevron Corporation
= (21,369 – 11,336) ÷ 21,369
= 0.47

2 Profit margin = 100 × Net income (loss) attributable to Chevron Corporation ÷ Sales and other operating revenues
= 100 × 21,369 ÷ 196,913
= 10.85%

3 Asset turnover = Sales and other operating revenues ÷ Total assets
= 196,913 ÷ 261,632
= 0.75

4 Financial leverage = Total assets ÷ Total Chevron Corporation stockholders’ equity
= 261,632 ÷ 160,957
= 1.63

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.14 × 6.43% × 0.66 × 1.69
= -0.99%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (286,816 × 15.02% – 15,725) ÷ (286,816 + 15,725)
= 9.04%

where:
Equity market value0 = current market value of Chevron Corp. common stock (US$ in millions)
FCFE0 = the last year Chevron Corp. free cash flow to equity (US$ in millions)
r = required rate of return on Chevron Corp. common stock

FCFE growth rate (g) forecast

Chevron Corp., H-model

Microsoft Excel
Year Value gt
1 g1 -0.99%
2 g2 1.52%
3 g3 4.02%
4 g4 6.53%
5 and thereafter g5 9.04%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -0.99% + (9.04% – -0.99%) × (2 – 1) ÷ (5 – 1)
= 1.52%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.99% + (9.04% – -0.99%) × (3 – 1) ÷ (5 – 1)
= 4.02%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.99% + (9.04% – -0.99%) × (4 – 1) ÷ (5 – 1)
= 6.53%