Investing in the stock market is like hunting for treasure—you need the right tools to unearth hidden gems. Chevron Corporation (CVX), a global energy giant, has been a staple in many portfolios, but is it undervalued today? Using two powerful valuation techniques—the Buffett Valuation Method and the McGrew Valuation Method—we dive deep into CVX’s financials to estimate its intrinsic value and determine whether it’s a buy, hold, or something more exciting. Spoiler alert: the results might surprise you!
Why Chevron?
Chevron, a leading integrated energy company, operates in oil and gas exploration, production, and refining. With a market cap of over $250 billion and a history of resilience through energy market cycles, CVX is a favorite among dividend investors. Its recent closing price of $148.85 (as of June 17, 2025) prompts the question: does this price reflect its true worth? To find out, we applied two sophisticated discounted cash flow (DCF) models, leveraging five years of financial data from Chevron’s cash flow and balance sheet statements.
The Buffett Valuation Method: A Conservative Approach
Inspired by Warren Buffett’s philosophy, this method focuses on a company’s free cash flow (FCF)—the cash left after covering operating expenses and capital expenditures. We used CVX’s FCF from 2022 ($37.63 billion), 2023 ($19.78 billion), and 2024 ($13.57 billion, trailing twelve months). The three-year FCF compound annual growth rate (CAGR) was a concerning -22.5%, reflecting recent declines in cash flow due to volatile energy prices. Given this negative growth, we classified CVX as a stable stock, applying a conservative 5% growth rate for the next 10 years.
Projecting FCF forward, we calculated a Year 10 FCF of $22.10 billion. Using a 2.5% perpetual growth rate and an 8% discount rate (4% Treasury yield + 4% risk premium), we estimated a terminal value of $411.85 billion. Discounting all cash flows back to today, the total intrinsic value reached $296.86 billion. Dividing by CVX’s 1.732 billion shares outstanding (as of Q1 2025), we arrived at an intrinsic value per share of $171.39. Applying a 25% margin of safety, the target price becomes $128.54.
Comparing this to the closing price of $148.85, CVX falls within the “Buy” range (between $128.54 and $159.39, 93% of intrinsic value). This suggests CVX is fairly priced but offers a modest opportunity for investors seeking value.
The McGrew Valuation Method: Capturing Growth Potential
The McGrew Valuation Method is more dynamic, tailored for companies with varying growth prospects. Using five years of FCF data (2020: $1.66 billion; 2021: $21.13 billion; 2022: $37.63 billion; 2023: $19.78 billion; 2024: $13.57 billion), we calculated a five-year FCF CAGR of 69.7%. This high growth rate, driven by a low 2020 base during the pandemic, is unrealistic for long-term projections. To be conservative, we capped the initial growth rate at 10%, classifying CVX as a growth stock. We assumed 10% growth for Years 1–10, simplifying the model since the growth rate didn’t need to decline to 10% by Year 7.
Projecting FCF, we estimated a Year 10 FCF of $35.19 billion. Using the same 2.5% perpetual growth and 8% discount rate, the terminal value was $655.80 billion. Discounting all cash flows, the total intrinsic value soared to $453.46 billion, yielding an intrinsic value per share of $261.77. With a 25% margin of safety, the target price is $196.33.
Remarkably, the closing price of $148.85 is well below $196.33, qualifying CVX as a Screaming Buy—a rare opportunity where the market price is at least 25% below the intrinsic value. This suggests significant upside potential for long-term investors.
Valuation Status: Buy or Screaming Buy?
The Buffett method paints CVX as a solid “Buy,” offering value at current prices. The McGrew method, however, screams opportunity, labeling CVX a “Screaming Buy” due to its higher intrinsic value. The discrepancy arises from the McGrew method’s longer data horizon and growth assumptions, which capture CVX’s recovery from 2020 lows. Given energy sector volatility, the McGrew valuation’s optimism should be tempered, but it highlights CVX’s potential if oil prices stabilize or rise.
Key Assumptions and Limitations
Both valuations rely on historical FCF, which fluctuated significantly due to pandemic disruptions and energy price swings. The negative three-year CAGR forced a conservative 5% growth rate in the Buffett model, while the 69.7% five-year CAGR was capped at 10% for McGrew to avoid over-optimism. Without real-time data access, we couldn’t verify the $148.85 closing price or incorporate industry forecasts, potentially skewing growth assumptions. The 8% discount rate and 2.5% perpetual growth rate are standard but may not fully reflect CVX’s risk profile.
Chevron (CVX) appears undervalued, with the McGrew Valuation Method suggesting a compelling “Screaming Buy” opportunity at $148.85. The Buffett method’s “Buy” rating reinforces CVX’s attractiveness for value investors. With a strong dividend history and global operations, CVX could be a cornerstone for portfolios, especially if energy demand grows. Investors should monitor oil prices and CVX’s capital expenditure plans, as these will influence future FCF.
Ready to dig into this treasure? Chevron might just be the gem you’ve been searching for!
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