Chevron Corporation

CVX Details

Chevron Corporation (NYSE: CVX) is an integrated energy company with worldwide exploration, production, and refining operations. CVX generates revenue from two segments, namely, 1) Upstream segment, which includes production and sale of crude oil and natural gas, as well as the sale of third-party production of natural gas, 2) Downstream segment, dealing with the manufacture and sale of fuel and lubricant additives and the transportation and trading of refined products and crude oil.

Collaboration with Caterpillar: Chevron U.S.A. Inc., a subsidiary of CVX, announced a partnership with Caterpillar Inc. on September 08, 2021, under which the companies will assess the commercial viability of hydrogen as a substitute for conventional fuels in transportation and stationary power applications (such as line-haul rail, marine vessels, prime power, etc.). They will also create hydrogen demonstration projects for this purpose.

H1FY21 Results: The company reported a massive surge of 54.74% in total revenues and other income to USD 69.63 billion during H1FY21 (ended June 30, 2021) compared to USD 45.00 billion during H1FY20, due to a significant increase in revenues in both upstream and downstream segments. As a result, its net income increased to USD 4.49 billion during H1FY21 vs. a net loss of USD 4.70 billion during H1FY20. As of June 30, 2021, the company's cash and cash equivalents (including marketable securities) amounted to USD 7.56 billion, and the total debt was USD 43.02 billion.

Key Risks: The upstream segment's earnings are linked directly to crude oil and natural gas market prices, which are highly volatile. In addition, its product demand is linked to global economic conditions, industrial production, technological innovations, actions of OPEC, and other factors over which CVX has no control. Any of these issues might stifle its production capacity in an affected region, leading to lower revenues and cash flows.

Outlook: In its Q2FY21 press release, CVX stated that it plans to resume its share repurchasing activity during Q3FY21, at an expected rate of USD 2 – 3 billion per year.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CVX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CVX's share price has increased by 26.41% in the past twelve months and is currently at the higher band of the 52-week range of USD 65.16 to USD 113.11. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 49.90. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at the target price of USD 92.94. Considering the global threat of the new COVID-19 delta variant and its effect on the oil & gas industry, the current valuation, and other associated risks, we recommend a "Sell" rating on the stock at the current price of USD 98.21, up by 2.23% as of September 13, 2021, at 11:40 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

American Resources Corporation

AREC Details

American Resources Corporation (NASDAQ: AREC) is a coal mining and processing company based in eastern Kentucky. AREC's primary concentration is on metallurgical coal and pulverized coal injection (PCI) coal mining, processing, transportation, and sales to the steel industry. The Central Appalachian basin of eastern Kentucky and southern West Virginia, where metallurgical carbon deposits are concentrated, is home to AREC's increasing portfolio of operations.

New Contract from US DOE: AREC was nominated as a member of a partnership contract to assess critical and rare earth elements in Coal Resource Feedstocks by the US Department of Energy (DOE) on August 25, 2021. Under the agreement terms, the company will support a DOE-sponsored project that will use prompt gamma neutron activation analysis (PGNAA) spectrum technology to develop innovative methodologies for forecasting rare earth elements and essential minerals in various coal types.

Completion of Site Selection Process for Rare Earth Elements: AREC announced on August 18, 2021, that it completed its site selection to construct its first commercial-scale rare earth element purification and isolation plant in the US. Built on 6.9 acres of developable land in Noblesville, Indiana, the facility will purify and isolate rare earth metals using ligand assisted displacement (LAD) chromatography technology.

H1FY21 Results: The company reported a 46.24% decline in total revenues to USD 0.40 million during H1FY21 (ended June 30, 2021) compared to USD 0.75 million during H1FY20, due to a significant decline in coal, metal aggregating, and processing sales. As a result, its net loss also expanded to USD 13.04 million during H1FY21 from USD 1.95 million reported in H1FY20. As of June 30, 2021, the company's cash and cash equivalents amounted to USD 28.11 million, and the total debt was USD 23.37 million.

Key Risks: Two coal customers accounted for 49.5% of AREC's total revenue in FY20, and three customers accounted for 87.49% of revenue in FY19. Two metal recovery clients accounted for remaining 50.5% of revenue in FY20. Such excessive dependence on a few customers for business could hurt the company's financial standing.

Outlook: As of August 16, 2021, AREC expects its full-year FY21 revenues to range between USD 35 to USD 60 million and is confident in its ramp-up leading to FY22.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AREC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: AREC's share price surged 28.75% in the past month and is currently trading at the lower band of the 52-week range of USD 1.26 to USD 8.02. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 60.62. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 2.18. Considering the technical indicators, a significant uptick in the stock price, and loss-making status, we believe the business fundamentals are adequately reflected at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 2.37, up 3.00% as of September 13, 2021, 12:24 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.

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