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Strategies & Market Trends : Value Investing
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Harshu Vyas
To: Harshu Vyas who wrote (76652)12/8/2024 9:56:23 AM
From: E_K_S1 Recommendation  Read Replies (1) of 78567
 
Chevron Plans to Cut Billions in Spending to Boost its Already Robust Free Cash Flow and Cash Returns in 2025

Chevron (NYSE: CVX) is already a free cash flow machine. The oil company aims to produce even more cash next year, which would give it more money to return ...

  • Chevron plans to cut its capital spending by $2 billion in 2025, allocating $13 billion to upstream projects, with a focus on its U.S. resource portfolio.
  • The company aims to reduce costs and increase free cash flow, with a goal of achieving $2-3 billion in cost savings by 2026.
  • Chevron's strong balance sheet and free cash flow have enabled it to return a record $7.7 billion to shareholders via dividends and repurchases, and it expects to return even more cash in 2025.
  • The company's pending deal to buy Hess could provide a significant upside catalyst and enhance its production and free cash flow growth outlook into the 2030s.
FCF Margin: As of the latest data, Chevron reported a trailing-12-month levered FCF margin of 7.66%, which is notably higher than the industry average of 6.12% 2 5.

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Looks like CVX's management has focused on their FCF generation to determine their CAP X for 2025 rather than looking to Sales/Revenue growth. Again a management decision.

Chevron produced approximately $10.7 billion after capital expenditures in the first nine months of 2024, demonstrating robust cash generation capabilities 3
. This positions Chevron favorably against its peers in terms of financial health and shareholder returns.
  • Capital Expenditure Plans: Chevron's capital expenditure plans reflect a focus on reducing spending while enhancing cash flow. The company aims for organic capital expenditures to fall between $145 billion and $155 billion in 2025, indicating a strategic shift towards maximizing FCF rather than merely increasing production levels 3.
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So is this strategy the best way to bring value to it's shareholder's? Is the strategy unique to integrated oil companies or specific sectors? Should the 'Value' investor be screening for this (growing FCF) and/or is it only important to companies that are dividend payers (CVX is a dividend "King" increasing dividends for 37 consecutive years).

You can use the metric Price/FCF to screen for companies selling at a discount to their FCF. CVX Price/FCF = 15.9x.

Just more things to consider when looking at and/or determining Value. I think analysis of company's FCF may be more important during times of stagnate growth and/or recessions. Hard to say what is the best strategy but being able to manage future FCF does help management maintain dividends & stock buy backs. Could be seen as a 'defensive' way for management to continue to bring value to it's shareholders.
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