4 Overvalued Oil Stocks to Avoid as OPEC Agrees to Raise Output

NYSE: CVX | Chevron Corporation  News, Ratings, and Charts

CVX – With the settlement of a disagreement between Saudi Arabia and the UAE, an OPEC+ deal to increase production was sealed earlier this week. Following the agreement, oil prices have declined approximately 8%. Because declining global demand could cause oil prices to fall further, we believe Chevron (CVX), Pioneer Natural Resources (PXD), Phillips 66 (PSX), and Valero Energy (VLO), which are trading at expensive valuations, could witness a price retreat soon. Let’s discuss.

On July 18, OPEC+ announced plans to increase crude oil production by 400,000 barrels each day beginning in August, following a week of internal conflict. The projected rise in supply, coupled with a decline in market demand amid a deceleration of the economic recovery and rising concerns regarding the rapid spread of the COVID-19 Delta variant, has caused oil prices to slump lately. 

West Texas Intermediate crude futures fell below the critical $70 level on July 19. Oil prices in the United States settled at $66.42 per barrel on the same day, hitting a 10-month low. The gradual easing of the supply curbs is expected to continue to put pressure on oil prices.

Oil prices are expected to decline further in the near term owing to decelerating global demand with the resurgence of COVID-19 cases in several countries. Given this backdrop, oil stocks Chevron Corporation (CVX), Pioneer Natural Resources Company (PXD), Phillips 66 (PSX), and Valero Energy Corporation (VLO), which are currently trading at high valuations, might witness a pullback soon. Thus, we think these stocks are best avoided now.

Chevron Corporation (CVX)

CVX in San Ramon, Calif., engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream.

On March 9, it was notified that WeissLaw LLP is investigating possible its breaches of fiduciary duty and other alleged violations of law by Noble Midstream Partners, LP (NBLX) and CVX in connection with CVX’s acquisition of the publicly held common units representing the limited partner interests in Noble Midstream. In terms of non-GAAP forward P/E, CVX is currently trading at 15.67x, which is 47.8% higher than the 10.61x industry average. Its 18.52 trailing-12-month Price/Cash Flow multiple is 188.8% higher than the 6.41 industry average.

CVX’s net income declined 61% year-over-year to $1.40 billion in its fiscal first quarter, ended March 31. Its operating expenses grew 3.7% from its  year-ago value to $6.29 billion. The company’s EPS declined 62.7% year-over-year to $0.72. Shares of CVX have lost 5.9% over the past month and 2.1% over the past five days.

The stock has a D grade for Value and Momentum in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Among the 93 stocks in the Energy – Oil & Gas industry, CVX is ranked #77.

To see additional CVX ratings for Growth, Sentiment, Stability, and Quality, click here.

Pioneer Natural Resources Company (PXD)

PXD is  an independent oil and gas exploration and production company that is based in Irving, Tex. The company explores for, develops, and produces oil, natural gas liquids (NGLs), and gas.

On May 14, Levi & Korsinsky, LLP notified that it had commenced an investigation of PXD on account of possible breaches of fiduciary duty by Certain Officers and directors.

PXD’s 1.40 forward non-GAAP PEG multiple is 86.5% higher than the 0.75 industry average. In terms of forward Price/Sales, PXD is currently trading at 2.40x, which is 90.4% higher than the 1.26x industry average.

PXD reported a negative net income of $70 million, indicating a decline of 124.1% year-over-year in the first quarter ended March 31. The company’s EPS declined 118.9% year-over-year to a negative $0.33. Its cash and cash equivalents balance decreased 15.6% from the prior-year quarter to $724 million over this period.

PXD has slumped 9.9% over the past month to close yesterday’s trading session at $143.85. The stock has lost 4.5% over the past five days.

PXD has a D grade  for Value in our proprietary rating system. It is ranked #50 in the Energy – Oil & Gas industry.

Click here to view additional PXD ratings for Growth, Momentum, Quality, Sentiment, and Stability.

Phillips 66 (PSX)

PSX in Houston, Tex., is  an energy manufacturing and logistics company. It operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S).

On June 25, it was announced that Illinois attorney general Kwame Raoul filed a suit against PSX over venting tankers. Raoul also announced an agreed interim order with the company.

In terms of forward P/E, PSX is currently trading at 32.93x, which is 180.6% higher than the 11.73x industry average. Its 10.84 forward Price/Cash Flow ratio is 107.5% higher than the 5.22 industry average.

PSX’s operating expenses increased 2.9% year-over-year to $1.38 billion in the first quarter ended March 31. Its net loss declined 73.7% year-over-year to $639 million. The company reported a $1.49 loss per share.

PSX has lost 15.6% over the past month. The stock lost 2% intraday to close yesterday’s trading session at $72.31.

PSX has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. In addition, PSX has a D grade  for Sentiment. It is ranked #79 in the Energy – Oil & Gas industry.

Beyond what we’ve stated above, we have also rated PSX for Growth, Value, Momentum, Quality, and Stability. Click here to view all PSX ratings.

Valero Energy Corporation (VLO)

VLO manufactures, markets, and sells transportation fuels and petrochemical products in the United States, Canada, the United Kingdom, Ireland, and internationally. The San Antonio, Tex., company operates through three segments: Refining, Renewable Diesel, and Ethanol.

VLO’s 38.74 forward EV/EBIT multiple s186.1% higher than the 13.54 industry average. In terms of forward Price/Cash Flow, VLO is currently trading at 8.82x, which is 68.95% higher than the 5.22x industry average.

VLO’s revenues decreased 5.9% year-over-year to $20.81 billion in its  fiscal first quarter ended March 31. Its operating expenses increased 47.3% from their  year-ago value to $1.66 billion. The company reported a $622 million net loss. Shares of VLO have declined  21.6% over the past month and 2.2% intraday.

It’s no surprise that VLO has an overall rating of D, which equates to Sell in our POWR Ratings system. In addition, VLO has a grade of D for Growth, Stability, and Sentiment. It is ranked #84 in the Energy – Oil & Gas industry.

To see additional POWR Ratings for Value, Momentum, and Quality, click here.

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CVX shares were trading at $98.89 per share on Friday afternoon, up $0.07 (+0.07%). Year-to-date, CVX has gained 20.21%, versus a 18.39% rise in the benchmark S&P 500 index during the same period.


About the Author: Subhasree Kar


Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...


More Resources for the Stocks in this Article

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