Post-2Q26 10-Q Model Update
CITI’S TAKE
We update our CVX model following the 2Q26 10-Q and updated management guidance. We raise 2026e and 2027e EPS by 23% and 14%, respectively, with most of the uplift driven by marking-to-market refining margin forwards. Within Downstream, we also increase equity income contribution from Chemicals JVs (incl. CPChem) by ~40%, reflecting near-term polyethylene margin expansion. While current market conditions remain supportive, we assume PE margins normalize toward ~14¢/lb by 4Q26. Our revised 3Q26e adj. net income now sits just 2% above current Street consensus. Despite these revisions, we make no material changes to our longer-term assumptions, and accordingly, we maintain our Buy rating and $235/share target price.
Company description
Chevron, headquartered in Houston, TX, is one of the world’s largest oil companies. Around 85% of the company’s invested capital is in the upstream oil & gas (E&P) business spread globally, but with key exposures to Kazakhstan, Guyana, the US, Australia, and Southeast Asia. The remainder of the business is across global oil refining and marketing operations, with bias towards the Pacific Rim, and in a petrochemical joint venture called CPChem.
Investment strategy
We have a Buy rating on Chevron, based largely around the delivery of key growth investment (and the Hess acquisition) that drives multiple compression over the 2026/27 period. Longer-term we continue to believe there is enough optionality in the business (US shale, TCO extension, Guyana, and LNG) to support capacity for accretive growth.
Valuation
Our 12-month target price for Chevron is $235, derived from DCF. Our DCF is calculated using Citi Research’s commodity view of $82.5/b 2026E and long-term US$55/bbl (real, 2021 money) and then a 2.0% terminal growth. We use a WACC of 6.2%, calculated using CAPM.
Risks
Our investment thesis on Chevron considers a number of industry- and company-specific risk elements that could cause the shares to deviate from our target price:
Commodity prices – Chevron’s earnings are sensitive to changes in oil and natural gas prices and refining margins, all of which can fluctuate significantly as a function of economic and geopolitical forces.
Currency – Chevron’s principal earnings and costs are in USD, although significant moves in local currencies can have some impact on local cost structures (e.g., Australia) and local revenues (e.g., timing of local fuel price changes).
Political – Changing political forces can affect Chevron’s legal ownership, fiscal take, and pace of development activity in any country in which it operates.
Natural and man-made disasters – Chevron’s operating activities can be severely disrupted by the effects of natural disasters or industrial accidents. Accidents may bear the burden of additional costs for remediation, fines, and from restrictions on future business activities.
If the impact on the company from any of these factors proves to be greater/less than we anticipate, we believe the stock will likely have difficulty achieving our target price or could outperform it.
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