Stock Analysis on Net
Stock Analysis on Net

Chevron Corp. (NYSE:CVX)

Present Value of Free Cash Flow to the Firm (FCFF)

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. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Chevron Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 13.87%
01 FCFF0 20,224
1 FCFF1 20,091 = 20,224 × (1 + -0.66%) 17,645
2 FCFF2 20,341 = 20,091 × (1 + 1.24%) 15,688
3 FCFF3 20,979 = 20,341 × (1 + 3.14%) 14,210
4 FCFF4 22,036 = 20,979 × (1 + 5.04%) 13,109
5 FCFF5 23,564 = 22,036 × (1 + 6.93%) 12,311
5 Terminal value (TV5) 363,536 = 23,564 × (1 + 6.93%) ÷ (13.87% – 6.93%) 189,924
Intrinsic value of Chevron Corp. capital 262,887
Less: Debt (fair value) 19,355
Intrinsic value of Chevron Corp. common stock 243,532
 
Intrinsic value of Chevron Corp. common stock (per share) $131.12
Current share price $157.57

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.

Weighted Average Cost of Capital (WACC)

Chevron Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 292,650 0.94 14.65%
Debt (fair value) 19,355 0.06 2.01% = 2.94% × (1 – 31.48%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,857,269,160 × $157.57
= $292,649,901,541.20

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (27.60% + 28.30% + 27.50% + 25.40% + 48.60%) ÷ 5
= 31.48%

WACC = 13.87%

FCFF Growth Rate (g)

FCFF 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)
Interest and debt expense 469 516 712 697 798
Net income (loss) attributable to Chevron Corporation 21,369 35,465 15,625 (5,543) 2,924
 
Effective income tax rate (EITR)1 27.60% 28.30% 27.50% 25.40% 48.60%
 
Interest and debt expense, after tax2 340 370 516 520 410
Add: Cash dividends 11,336 10,968 10,179 9,651 8,959
Interest expense (after tax) and dividends 11,676 11,338 10,695 10,171 9,369
 
EBIT(1 – EITR)3 21,709 35,835 16,141 (5,023) 3,334
 
Short-term debt 529 1,964 256 1,548 3,282
Long-term debt, excluding debt due within one year 20,307 21,375 31,113 42,767 23,691
Total Chevron Corporation stockholders’ equity 160,957 159,282 139,067 131,688 144,213
Total capital 181,793 182,621 170,436 176,003 171,186
Financial Ratios
Retention rate (RR)4 0.46 0.68 0.34 — -1.81
Return on invested capital (ROIC)5 11.94% 19.62% 9.47% -2.85% 1.95%
Averages
RR -0.08
ROIC 8.03%
 
FCFF growth rate (g)6 -0.66%

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).

1 See details »

2023 Calculations

2 Interest and debt expense, after tax = Interest and debt expense × (1 – EITR)
= 469 × (1 – 27.60%)
= 340

3 EBIT(1 – EITR) = Net income (loss) attributable to Chevron Corporation + Interest and debt expense, after tax
= 21,369 + 340
= 21,709

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [21,709 – 11,676] ÷ 21,709
= 0.46

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 21,709 ÷ 181,793
= 11.94%

6 g = RR × ROIC
= -0.08 × 8.03%
= -0.66%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (312,005 × 13.87% – 20,224) ÷ (312,005 + 20,224)
= 6.93%

where:

Total capital, fair value0 = current fair value of Chevron Corp. debt and equity (US$ in millions)
FCFF0 = the last year Chevron Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Chevron Corp. capital

FCFF growth rate (g) forecast

Chevron Corp., H-model

Microsoft Excel
Year Value gt
1 g1 -0.66%
2 g2 1.24%
3 g3 3.14%
4 g4 5.04%
5 and thereafter g5 6.93%

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)
= -0.66% + (6.93% – -0.66%) × (2 – 1) ÷ (5 – 1)
= 1.24%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.66% + (6.93% – -0.66%) × (3 – 1) ÷ (5 – 1)
= 3.14%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.66% + (6.93% – -0.66%) × (4 – 1) ÷ (5 – 1)
= 5.04%