Chevron Stock May Be 45% Undervalued, Analyst Says

Chevron's (CVX) stock has been on a tear over the past five years, delivering a total return of 150.5%. However, the company's intrinsic value estimate and market multiples suggest that the shares may be undervalued by as much as 45%.

The Discounted Cash Flow (DCF) method estimates Chevron's worth based on its expected future cash flows. Using the latest twelve-month free cash flow of approximately $27.2 billion, the model assumes cash flows will grow over time. This results in an intrinsic value of around $362 per share, implying a 44.8% undervaluation compared to the current price of around $200.

The recent news about Chevron's Angola discovery and its growing role in AI-related energy projects has added to the company's appeal. However, concerns over windfall taxes on oil profits may be weighing on investor sentiment.

Chevron's P/E ratio is currently 19.1x, which is above the industry average of 12.6x and its peer group average of 16.3x. The fair P/E multiple for Chevron is estimated at 25.6x, suggesting that the stock trades at a discount to what its fundamentals and risk profile indicate could be reasonable.