CVX

Chevron is a high-quality integrated major with a fortress balance sheet — liabilities/equity of just 0.71x, $186B of equity and $33.9B of operating cash flow (up 7.8% even as profits fell). But the earnings story is firmly negative: net income has now declined three straight years from the 2022 peak ($35.5B → $21.4B → $17.7B → $12.3B in FY2025, down 30.4%), and diluted EPS fell 31.8% to $6.63. The 10-K's quarterly table shows the slide continuing into year-end — Q4 2025 EPS of $1.39 versus $1.84 a year earlier. ROE has compressed to 6.6%, below any reasonable cost of equity, reflecting both trough commodity margins and a much larger equity base.

The defining event is the Hess acquisition, which closed during 2025 and is the crux of the forward case. Management discloses Hess now represents 24% of total assets but contributed only 3% of revenue for the partial period — so the prize (notably Guyana's Stabroek growth) is on the balance sheet but barely in the income statement yet. The deal was stock-funded: shares outstanding rose 13.3% to 2.00B, diluting per-share metrics and inflating the equity denominator that drags ROE. Total assets jumped 26.1%. The upside is real production/reserve growth as Hess ramps to a full-year contribution; the cost is near-term dilution and assumed debt.