Chevron (CVX)

Total return at 5 years: -2.2%/year = -6.5% appreciation + 4.3% dividend. The target price ($154) is ex-dividend; the $40 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $184 · Multiples $159) is below the market price ($215).

Today — expensive, no margin of safety: at $215 trades ~35.5% above its value discounted to today (~$159); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$103.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($215) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (8.3%/year) above our base case (5.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$20.9 bn of owner earnings in year 5 (vs ~$17.9 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta mid-cycle (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: the year-0 level is the real TTM (sales $208.7bn as of Jun-2026, XBRL), but earnings are normalized to mid-cycle. That TTM runs at the Q2'26 Brent spike ($104 vs $68 a year earlier, with $12.1bn of earnings in a single quarter), and a price spike from a geopolitical cause does not move the mid-cycle: that is why the year-0 margin is scaled down (7.0%→6.2% net) so normalized earnings land at the same ~$13bn, and the year 1-5 path is left untouched. That is why revenue falls from year 0 to year 1 —it is the price reverting to the normalized range— and grows by volume from there on. Chevron is valued on P/E over mid-cycle net income (normalized crude ~$65 Brent —the midpoint of the $60-70 range—, not spot; it is a cyclical price-taker), not on EV/EBITDA. The year-0 earnings level of ~$13bn is the normalization of FY2025 ($12.3bn, earned at Brent $69, within the mid-cycle range) — depressed by the Hess purchase-accounting depreciation (DD&A step-up of +$2.8bn on $73.5bn of fair-valued assets) and by only half a year of Hess; the raw TTM ($11bn) is not used because it carries $2.9bn of temporary, non-economic effects in Q1'26 (mark-to-market + LIFO, which the company itself says will reverse). Earnings grow at flat crude ~+11%/year from the Guyana volume ramp (30% of the Stabroek block, toward 8 FPSOs by 2030) + Permian + Hess synergies, to ~$21.5bn by year 5. The buyback (~−1.5%/year, conservative and below the revealed pace because at mid-cycle Chevron over-distributes —dividend + buyback > FCF—) is modeled in the share path (sharesPath): shares decline from 1,986 to ~1,842 million and value per share is divided by future shares. The exit multiple is held at 13× —the top of the historical oil major range (10-13×)— with a nod to Guyana, without raising it above the range (anti-stacked-optimism discipline, §2). Cash is not accumulated (it over-distributes), so forward multiples compress because the metric grows (toward ~17× by year 5). Capex is ~90% maintenance (E&P reinvests heavily to replace reserves). Asymmetric profile: the sign of the return depends on multiple compression and the pace of the Guyana ramp.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $154 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $215, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $154 in 5 years plus $40 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $159. Against the current market price ($215), the margin of safety is -35.5% (trades above the maximum → a premium is paid) and the total return at that price would be -2.2% annually.

• Multiple vs mid-cycle. P/E ~32× on mid-cycle earnings (Brent $65) — expensive for an oil major (historical 10-13×). Re-rated for Guyana + earnings depressed by the higher post-acquisition depreciation.
• P/NAV (cross-check). 10.6bn boe of proved reserves (158% replacement in 2025); Guyana far above what's booked. Market value incorporates downstream + unproved growth.
• Margin of safety. Base case with a slightly negative price CAGR (the multiple reverts), -2% total return with dividend — below the required-return floor → negative margin (no margin). Downside-skewed.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (108%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROCE vs the 10% bar. ROCE ~9% (mid-cycle), around the bar — thin for the reinvestment level of a capital-intensive cyclical → modest value creation. The value is in the low-cost assets (Guyana).
• Cash quality. Owner earnings at normalized crude (~$14bn) barely exceed mid-cycle net income ($13bn) — the underlying cash flow exceeds GAAP earnings depressed by the higher depreciation following the Hess acquisition: it reinvests heavily to replace reserves.
• Balance sheet. Solid: investment grade AA-/Aa2, net debt 15.6% of capital (up because of Hess, still conservative) — invests through the cycle.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

An oil major's engine is volume × commodity price. Chevron is growing volume (record production 3.72M boe/d, +12% with the Hess addition) but the price tracks the cycle (realized Brent $81→$69). Volume growth (Guyana to 8 FPSOs by 2030, 30% net; Permian record 1M boe/d) offsets the flat mid-cycle price. Guyana is the jewel: very low-cost crude (break-even far below mid-cycle), the best growth asset in oil.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Volume growth (production +12% with Hess, the Guyana ramp) is real; revenue/earnings track the cyclical crude price.
• Growth driver. Guyana (low cost, via Hess) + Permian (record 1M boe/d) — the best volume pipeline in the industry. But at a flat mid-cycle price.
• Cyclicality. Earnings are cyclical (crude). Spot is running above mid-cycle ($60-70 Brent) — a reversion is likely.

• Relevant in 10 years (recurrence). Oil will keep being used for decades, but the transition is a long-term risk. High recurrence over the medium term.
• Pricing power. None — it's a commodity price-taker. The advantage is low cost (Guyana, Permian), not price.
• Moat and its direction. Narrow moat (commodity) and stable: Guyana adds low-cost volume via Hess, which measures size and not a unit gap. Scale + integration.
• Cyclicality. Intrinsically cyclical (follows the crude price). Earnings went from $21.4bn (2023) to $12.3bn (2025) — commodity cycle + higher post-Hess-acquisition depreciation.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.7x
• ✓Interest coverage (EBIT / interest)17.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 108% of ROIC
• ✕Value creation (ROIC − 10% bar)-1pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.0x — no over-investment
• !Float / working capitalConsumes cash $1 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 0.2% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt 15.6% of capital (investment grade AA-/Aa2) — up from 10.4% because of Hess, still solid.
• Sustainability of the return. The dividend is covered by FCF; the buyback isn't at mid-cycle (over-distributes) → a lever to cut.
• Hess execution. Systems/controls integration (24% of assets, excluded from the 2025 assessment), synergies beyond $1bn — a non-trivial execution risk.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Insider ownership low as a percentage (no founder control); Wirth holds 17.9× his salary in shares, 92% of pay is performance-based. Berkshire's 6.7% stake validates the quality.
• Capital allocation. Strong discipline (compensation tied to ROCE-I, not production). But it over-distributes at mid-cycle (buyback > FCF), and the execution of the Hess acquisition (~$48bn) is still to be proven.
• Efficiency / integrity. $3-4bn structural savings target; $1bn of Hess run-rate synergies achieved. Transparent disclosure.

• It isn't cheap — it's expensive at mid-cycle: 32× normalized earnings (Brent $65), well above the oil-major historical range (10-13×).
• The market pays a premium for Guyana (the best growth asset in oil, via Hess) + looks through the earnings depressed by the higher post-acquisition depreciation. Berkshire owning 6.7% signals quality, not a bargain.
• Consensus is betting that crude stays elevated and that the Guyana ramp executes; the method values on mid-cycle, where the multiple reverts and the price stays flat.

It isn't a bubble (it's a real, top-quality business, transformed by Hess), but the multiple (32× mid-cycle) reverts toward the historical range and the price stays flat despite volume growth. The dividend aristocrat status (3.75%, stronger backing than ExxonMobil's) cushions that reversion: if crude stays elevated or Guyana executes fast, the return would be 'In line'; at disciplined mid-cycle, it barely preserves nominal capital (below the required-return floor).

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -14%/year (-54% total): the margin of safety protects the downside. The bull (+7%/year, +39% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Oil price (reversion). Spot is running above mid-cycle; with OPEC+ oversupply, a reversion to $60-65 (or lower) hits earnings + the multiple. The central disconfirmer.
• Hess execution. The Guyana ramp, synergies, integration — the driver that justifies the premium; if it disappoints, there's no growth story.
• Over-distribution. Returns more than its FCF at mid-cycle → the buyback is cut if crude falls.
• Transition / climate litigation. Peak oil demand + carbon regulation + 34 climate lawsuits (the Supreme Court took up a case in Feb-2026) — a long-term structural risk.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 9% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 5% at a PEG of 6.5 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 9% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 8% vs our 5%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -21%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, efficient scale, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 8% vs our 5%: coherent, but at the optimistic end of the range.