Energy major Chevron Corporation CVX emerged as August’s most shorted large-cap stock in the United States ahead of Tesla TSLA, according to Hazeltree’s Shortside Crowdedness Report.
Report: Shorting Chevron Stock Surges $200 million
The report, which compiles data from approximately 700 asset management funds globally, revealed that the total value of Chevron’s stock used for shorting surged by more than $200 million last month.
Short selling occurs when a trader sells shares they don’t own, hoping that the price will fall. They borrow shares to sell at a high price, then buy them back at a lower price to return to the lender, pocketing the difference as profit. If the price rises instead, they incur a loss. Short interest indicates how many shares have been sold short but not yet repurchased, reflecting the extent of short-selling activity.
CVX Plagued by Short-Term Vulnerability
The increased shorting of CVX stock can be taken as a signal that investors have become more bearish toward the company. It also reflects broader market sentiments, and for Chevron, it includes concerns over falling oil prices, the impact of excess natural gas supply and regulatory scrutiny over its proposed acquisition of Hess. Overall, short-sellers expect the share price of Chevron to fall in the near term.
As it is, shares of this integrated major slipped to a 52-week low of $135.37 last week. Over the past three months, CVX has lost more than 7% of its value, underperforming the S&P 500 and rival ExxonMobil XOM.
3-Month Stock Price Performance
Image Source: Zacks Investment Research
Factors Dragging Down Chevron Stock
Commodity Price Weakness Reduces Profit Margins: Chevron’s profits are closely tied to commodity prices, and recent declines in oil and gas prices have squeezed margins. The absence of favorable pricing support in refined product sales contributed to the weak Q2 results. Should commodity prices continue to underperform or face volatility, Chevron’s profit margins and earnings outlook will be negatively impacted, exacerbating the stock’s susceptibility to market fluctuations.
Potential Acquisition Uncertainty with Hess: Chevron’s $53 billion acquisition of Hess poses risks related to regulatory approval and disputes with Exxon. The Federal Trade Commission is reviewing the deal, and Exxon has lodged a claim of preemption rights to Hess’ Guyana assets. This adds layers of uncertainty, which, if unresolved or delayed, could hinder Chevron’s growth plans and weigh on the stock, possibly deterring investor confidence in the near term.
Analysts Cutting Earnings Estimates for Chevron: Analysts across Wall Street have been revising down their earnings estimates for the company. Over the last week alone, two analysts have cut their current year estimates for Chevron. Another one has done the same for next year’s numbers. Their bearish actions have cut CVX’s current year Zacks Consensus Estimate from $11.86 to $11.57, while next year’s number is off from $14.69 to $14.45.
While a quick glance at Chevron’s short-term outlook looks weak on paper let’s see why investors may still want to stay invested at the moment.
Taking a Closer Look Reveals CVX’s Strengths
Strong Production Growth in the Permian Basin: Chevron’s record-setting production in the Permian Basin is a critical driver of its long-term growth. In the second quarter of 2024, the company reported an 11% year-over-year increase in worldwide production, largely due to strong execution in the Permian and Denver-Julesburg basins. This impressive production boost, alongside the integration of PDC Energy, positions Chevron to capitalize on elevated oil prices, enhancing its profitability in future quarters.
Attractive Dividend Yield Above Historical Average: Chevron’s dividend yield stands at around 4.6%, well above its five-year average. This above-average yield, coupled with its robust dividend track record, underscores the stock’s appeal for income-focused investors. With consistent dividend payments and a history of increases, Chevron provides a stable income stream.
Image Source: Zacks Investment Research
Significant Undervaluation Amid Price Corrections: Chevron’s current valuation metrics reveal that the stock is trading at a noticeable discount compared to its historical levels. The company’s forward earnings multiple of 10.43 is around 13% below its five-year average. Based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), too, CVX trades at a discount to its long-term median.
Image Source: Zacks Investment Research
Conclusion: Hold Chevron Stock
Despite increased shorting, Chevron remains a quality business with a fairly impressive inventory of upstream development projects that will drive production growth in the long run. And if you are looking for a reliable high-yield oil stock, Chevron is still pretty attractive right now. However, the company’s high sensitivity to the oil price is clearly reflected in the current stock downturn. Estimates, too, do not look favorable for a higher share price. While this might not be the ideal time to invest in the “Big Oil” company, those who already own this Zacks Rank #3 (Hold) stock may stay invested.
Chevron currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
