Monday, October 31, 2016

Goldman Sachs Upgrades Chevron (CVX) and Adds Stock to Conviction Buy List


Goldman Sachs upgraded Chevron (NYSE: CVX) from Neutral to Conviction Buy with a price target of $118, implying upside of 14%. Analyst Neil Mehta thinks Chevron is at inflection in terms of production growth, free cash flow generation and the relative multiple. 

Mehta explained, "First, we see a strong volume improvement story after a decade of relatively flat production, driven by: (1) Australia/Africa LNG projects, which now appear on track for growth; (2) the Permian in the US; and (3) long-term, from Tengiz in Kazakhstan. Second, as new projects ramp and oil prices improve to $50-$60/bbl WTI, we forecast a robust free cash flow improvement, more than covering the dividend yield of 4.2%. Third, we expect CVX will see further relative multiple expansion vs. XOM with ROCE improvement."

Discussing catalysts, the analyst said, "We see a series of positive catalysts over the next 12 months that we believe can help to unlock value at Chevron. In 4Q2017 results, we project a major step-up in production and cash flow from Gorgon and ALNG, providing evidence of LNG project execution. We expect the acceleration in asset sales, with as much as $8 bn in asset sales possible by YE2017, particularly in downstream. Additionally, we expect the company to provide more details on its Permian acreage and growth plans, which we view as a premier asset in the Chevron portfolio, particularly at the March 2017 analyst day."

For an analyst ratings summary and ratings history on Chevron click here. For more ratings news on Chevron click here.

Shares of Chevron closed at $103.82 yesterday.

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