Now that there's credible evidence that the U.S. economy is recovering, U.S. gasoline demand may stabilize, helping refiners like Chevron Corp. (NYSE: CVX), hence I'm Reiterating my Buy rating for the company, first recommended on February 15, 2009 at a price of $66.18. Look for Chevron's oil/natural gas production to increase more than 5% in FY2009, and then at about a 4-4.5% annual rate 2010-2012.
The company is also on-track to achieve its objective of $2.5 billion in cost cuts. However, CVX, like other refiners, is feeling the effects of sluggish gasoline demand, which has reduced downstream margins. It's hard for refiners to pass along higher gasoline costs amid tepid demand. Take 7 million employees out of the U.S. economy via job lay-offs and the result is a difficult retail gasoline market: just ask convenience store operators with gas pumps about their traffic. The First Call FY2009/FY2010 EPS estimates for APSG are $4.73 to $7.54.
Still, Chevron remains an attractive refining play, longer-term: it owns 7 refineries and one asphalt plant, and has interest in 10 international refineries, for a total operable capacity of 2.14 million barrels per day, half of which is in North America.
Stock Analysis: Chevron Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in CVX now. Under any circumstance, don't buy more than 25% of your CVX position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $47.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX
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