Stock Analysis on Net

Chevron Corp. (NYSE:CVX)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Chevron Corp., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 14.84%
0 DPS01 6.04
1 DPS1 5.98 = 6.04 × (1 + -0.99%) 5.21
2 DPS2 6.09 = 5.98 × (1 + 1.90%) 4.62
3 DPS3 6.39 = 6.09 × (1 + 4.79%) 4.22
4 DPS4 6.88 = 6.39 × (1 + 7.68%) 3.95
5 DPS5 7.60 = 6.88 × (1 + 10.57%) 3.81
5 Terminal value (TV5) 196.80 = 7.60 × (1 + 10.57%) ÷ (14.84%10.57%) 98.51
Intrinsic value of Chevron Corp. common stock (per share) $120.31
Current share price $156.35

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

1 DPS0 = Sum of the last year dividends per share of Chevron Corp. common stock. 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)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of Chevron Corp. common stock βCVX 1.14
 
Required rate of return on Chevron Corp. common stock3 rCVX 14.84%

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]
= 4.43% + 1.14 [13.60%4.43%]
= 14.84%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Chevron Corp., PRAT model

Microsoft Excel
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
 
Dividend 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
= (21,36911,336) ÷ 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%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($156.35 × 14.84%$6.04) ÷ ($156.35 + $6.04)
= 10.57%

where:
P0 = current price of share of Chevron Corp. common stock
D0 = the last year dividends per share of Chevron Corp. common stock
r = required rate of return on Chevron Corp. common stock


Dividend growth rate (g) forecast

Chevron Corp., H-model

Microsoft Excel
Year Value gt
1 g1 -0.99%
2 g2 1.90%
3 g3 4.79%
4 g4 7.68%
5 and thereafter g5 10.57%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= -0.99% + (10.57%-0.99%) × (2 – 1) ÷ (5 – 1)
= 1.90%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -0.99% + (10.57%-0.99%) × (3 – 1) ÷ (5 – 1)
= 4.79%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -0.99% + (10.57%-0.99%) × (4 – 1) ÷ (5 – 1)
= 7.68%