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."
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Shares of Chevron closed at $103.82 yesterday.