Chevron Corporation CVX and Petróleo Brasileiro S.A., better known as Petrobras PBR, are two heavyweights in the global Oil/Energy sector. Both operate across exploration, production and refining, and both offer substantial dividend payouts. While Chevron dominates U.S. upstream operations and maintains a steady global footprint, Petrobras is Brazil’s energy giant with unmatched access to pre-salt offshore reserves and aggressive state-supported investment strategies. Their scale, capital allocation approaches and dividend yields have made them popular among income-focused investors.

Yet, macro challenges, commodity price volatility and company-specific risks are narrowing the gap between these two. Investors looking for stability and growth in energy stocks must now consider whether either of these names is a solid long-term play, or if both are better left on the sidelines. Let’s dive deep and closely compare the fundamentals of the two stocks to determine why it’s best to get rid of both stocks now.

Red Flags for Chevron Stock

Chevron has shown resilience through volatile markets, but cracks are forming. In the first quarter of 2025, cash flow from operations was $5.2 billion, down 23.5% year over year. The culprit was lower oil price realizations and tax payments associated with divestment in Canada. U.S. liquids averaged $55.26 per barrel during the first quarter, down nearly 4% from the year-earlier level. Even with natural gas strength, total revenues of $47.6 billion missed the Zacks Consensus Estimate, and earnings slipped to $3.5 billion from $5.5 billion.

A core issue lies in Chevron’s shrinking flexibility. The company issued $5.5 billion in new debt to fund dividends and buybacks, pushing its debt-to-total capitalization to 16.6. Despite a $75 billion repurchase authorization, quarterly buybacks have been cut to $2.5–$3 billion, down from $4 billion in previous quarters. If oil prices continue to slide, deeper cuts to shareholder returns may be unavoidable.

Strategically, Chevron faces questions around the future of Permian production. The proposed Hess acquisition is expected to bring valuable diversification through the Bakken, potentially easing some of those concerns. However, with investor sentiment around shale turning more cautious, Chevron’s ability to generate meaningful growth from these assets will be a key area to monitor. Meanwhile, global macro headwinds, such as a slowing U.S. economy and geopolitical instability, further cloud demand and price visibility. Add in margin pressure in its CPChem segment and inflation-sensitive Power Solutions venture and the outlook becomes cloudy.

Valuation doesn’t help the case either. CVX trades at a forward P/E of 17.55, well above the sector median. As earnings estimates continue to decline, the risk of further multiple compression is real.

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Red Flags for Petrobras Stock

Petrobras has its own list of concerns. Despite reporting consolidated net income of $6 billion in the first quarter, up 25% year over year, adjusted EBITDA fell to $10.4 billion from $12.1 billion a year ago. Revenues came in at $21.1 billion, falling 11.3% from last year and missing estimates. This disconnect - higher income but lower cash flow - is largely due to forex gains and not operational outperformance.

The dividend story, once Petrobras’ biggest attraction, is losing its shine. Free cash flow declined 30.7% year over year in the first quarter, and with Brent crude between $60 and $65 per barrel, Petrobras may struggle to sustain its 9% annualized dividend yield. Capital spending also surged to $4.1 billion in the January-March period, with more than 85% going into high-cost E&P projects.

Petrobras continues to face significant political risk, which remains a key vulnerability. State influence raises persistent concerns around governance and inefficient capital deployment. The company’s $111 billion strategic plan for 2025–2029 places greater focus on politically favored segments like refining and fertilizers, rather than its core upstream oil assets. This shift echoes earlier periods marked by heavy spending and weak returns. Net debt is rising again - now at $56 billion with a net debt/EBITDA ratio of 1.45 versus 0.86 a year earlier. Add in currency risk and regulatory headwinds, and the picture dims further.

Valuation metrics show why PBR trades at a discount: forward P/E is just 4.54. While this may look cheap, the discount is largely due to persistent political uncertainty and structural inefficiencies. EPS estimates have dropped sharply, with this year’s earnings now expected at $2.75, down from $3.01 a month ago.Zacks Investment Research

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Price Performance

Both stocks have significantly underperformed in 2025. Chevron is down roughly 7% year to date, as weakening oil prices and declining investor confidence in U.S. shale projects drag on sentiment. Petrobras has fared worse, losing more than 8% during the same period, largely due to fears of state intervention and decelerating free cash flow.Zacks Investment Research

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Conclusion

Both Chevron and Petrobras offer high dividends and global scale, but that’s where the upside ends for now. Chevron faces declining cash flows, debt growth and peak shale concerns. Petrobras, despite bold growth plans, is hampered by political interference, rising debt and falling free cash flow. With earnings expected to decline for each, CVX and PBR currently carry a Zacks Rank #5 (Strong Sell) and are likely to underperform in the near term. Investors may want to stay cautious until fundamentals improve.

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This article originally published on Zacks Investment Research (zacks.com).

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