Is Chevron Stock Primed for Growth After Profit-Boosting News?

Key Points

• Chevron announced it will lay off approximately 20% of its workforce by the end of 2026.
• The news comes at a pivotal time for the company, which is still finalizing its merger with Hess.
• While shareholders' path ahead will not be smooth, there is more reason to be bullish than bearish on CVX stock.

Chevron Corp. NYSE: CVX announced it was laying off approximately 20% of its global workforce by the end of 2026. The company announced the moves as an effort to cut costs, simplify its business, and complete its ongoing merger with Hess Corp. NYSE: HES.

After falling about 2% on the announcement, CVX stock has recovered but still trades over 10% below its 52-week high of around $166. That’s not new to investors.

Shares of the oil giant have been rangebound for the last 18 months, so long-term investors may wonder if this decision will spark the growth that’s been absent from CVX stock in recent years. The answer may not be as clear as the company’s dividend, which remains one of the key selling points for CVX stock.

Like other energy stocks in the oil and gas industry, Chevron has faced lower-than-expected crude oil prices, drilling restrictions put in place by the previous administration, and the cost pressures that come as many traditional oil companies begin to pivot towards renewable energy. Nevertheless, it’s important to put this news into context because many issues impact the company’s outlook.

"Drill, Baby, Drill" Is Being Met With Resistance

Between September and the election in November, CVX stock soared higher based on Donald Trump’s promise to “drill, baby, drill” to unleash America’s energy independence. This was the playbook he used with success in his first term. But this is a different environment for oil companies that resist Trump’s urging to increase production.

The oil and gas industry and the fortunes of energy stocks in general are always governed by supply and demand. When the price of oil goes down, it’s more expensive for oil companies to drill, especially for exploratory projects. But that’s the case for Chevron and other big oil companies like Exxon Mobil Co. NYSE: XOM and Occidental Petroleum Corp. NYSE: OXY.

Simply put, they know that if the Trump administration is successful in oversupplying the market, the price of oil will head lower. And while Chevron can still break even with oil trading in the $50s, it’s not anxious to test that right now, particularly as it faces cost overruns on a project on a large project in Kazakhstan.

The Merger With Hess Still Weighs on Earnings

Chevron continues to wait to finalize its merger with Hess.  The deal is subject to the outcome of an arbitration proceeding filed by Exxon Mobil. The deal is largely expected to go through, but the impact of the merger on future profits is weighing on the stock.

Embracing Technology to Streamline Operations

Chevron reported its fourth quarter 2024 earnings on February 7. The company beat on the top line with revenue of $52.23 billion, outpacing expectations for $48.41 billion. However, the company missed earnings, with earnings per share (EPS) of $2.06, coming in well below estimates of $2.42.

CVX stock fell about 4% on the news but has since recovered. The layoffs came with the additional news that Chevron would be moving to embrace robotics and artificial intelligence to modernize and streamline its operations. However, that may be more significant to AI stocks than it will be for CVX investors.

CVX Stock May Be Fairly Priced

Chevron’s forward price-to-earnings (P/E) ratio of 14.1 puts it at the average for integrated oil and gas stocks. And the stock has been bouncing around its 200-day simple moving average without much conviction for the past 12 months.

But there are a couple of reasons beyond cost-cutting to be bullish on CVX stock. First, the company is likely to benefit from higher LNG exports. It’s also possible that crude oil prices will actually rise and not fall. This is because the United States has to continue replenishing its strategic oil reserve, and despite the increase in output in 2024, U.S. crude oil stocks remain near their lowest levels in five years.

That’s a lot to digest, but on balance, the outlook for oil prices coupled with Chevron’s cost-cutting moves supports analysts' forecasts for a consensus price of $174.13 and an 11.6% gain from the current price. When you combine that with the company’s dividend yield of 4.18%, CVX stock remains a quality, buy-and-hold stock in a volatile sector.