• If you are wondering whether Chevron at around US$182.50 is offering fair value or if you are paying up for the story, this article walks through what the numbers are actually saying about the stock.
• The share price has pulled back recently, with a 5.6% decline over the last 7 days and a 9.4% decline over the last 30 days, while still showing returns of 17.1% year to date and 39.2% over 1 year.
• Recent headlines around Chevron have focused on broad energy sector sentiment and ongoing interest in large integrated oil companies as investors reassess where they want exposure. This backdrop provides useful context for the recent share price swings and frames the question of whether the current level is attractive for long term holders.
• Simply Wall St currently gives Chevron a valuation score of 3 out of 6. Next you will see how that score is built using different valuation approaches, before finishing with a way to think about valuation that can give you a fuller picture than any single model alone.

Approach 1: Chevron Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a stock could be worth by projecting the cash the company might generate in the future and then discounting those cash flows back to today in dollar terms.

For Chevron, Simply Wall St uses a 2 Stage Free Cash Flow to Equity model. The latest twelve month free cash flow is about $14.9b. Analyst inputs and extrapolated estimates point to free cash flow of $30.3b in 2030, with a path of projected cash flows between now and 2035 that are discounted back to reflect the time value of money and risk.

Adding these discounted cash flows together gives an estimated intrinsic value of about $351.67 per share. Against a current share price around $182.50, this implies Chevron trades at roughly a 48.1% discount to this DCF estimate. Based on this model, the stock screens as materially undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Chevron is undervalued by 48.1%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Chevron Price vs Earnings

P/E is a common yardstick for profitable companies because it links what you pay per share directly to the earnings that each share generates. Investors typically accept a higher P/E if they expect stronger earnings growth or see lower risk, and look for a lower P/E when growth expectations are modest or risks are higher.

Chevron currently trades on a P/E of 32.77x. That sits above the Oil and Gas industry average of 14.20x and below the peer group average of 37.02x, so the stock is priced at a premium to the broader industry but not at the top of its peer range. Simply Wall St also provides a proprietary “Fair Ratio” of 32.43x, which is the P/E that would be expected given Chevron’s earnings growth profile, industry, profit margins, market cap and risk characteristics.

This Fair Ratio is more tailored than a simple comparison with industry or peers because it adjusts for company specific factors rather than assuming all companies deserve similar multiples. Comparing the Fair Ratio of 32.43x with the current P/E of 32.77x suggests Chevron is trading slightly above this model based estimate.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Chevron Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Here is the idea of Narratives, which let you attach a clear story to your numbers by linking what you believe about Chevron’s future revenues, earnings and margins to a forecast and then to a fair value. This is all done in an easy tool available on Simply Wall St’s Community page. The tool helps you compare that fair value to the live price, automatically refreshes when fresh news or earnings arrive, and can look very different from investor to investor. For example, one Chevron Narrative on the platform currently points to a fair value of about US$184.69 per share, while another sees US$213.29, reflecting two different views on the same stock.

Do you think there's more to the story for Chevron? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.