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Is Chevron a Buy Following Earnings? This Analyst Says ‘Yes’
Stock Analysis & Ideas

Is Chevron a Buy Following Earnings? This Analyst Says ‘Yes’

There’s no getting around it, “old” energy stocks are not popular in 2020. While renewable energy focused stocks’ valuations have soared, the opposite has been true for the traditional energy behemoths. The largest U.S. oil company, Chevron (CVX), is a prime example, with shares down by nearly 40% year-to-date.

It would be foolish, though, to write off this giant of industry just yet and Chevron has held up better than most of its peers during the pandemic. It hasn’t cut its dividend, its debt to equity ratio is the sector’s lowest and the company has enacted cost cutting measures to weather the pandemic and keep an industry leading balance sheet intact.

That said, the company is not immune to the macro elements and the low oil price environment has taken its toll as laid out in its latest quarterly statement. Although in Q3 Chevron posted a surprising beat on the bottom line with Non-GAAP EPS of $0.11 coming in ahead of the estimates by a hefty $0.38, the top line took a severe beating. Revenue declined by 32% year-over-year to $24.45 billion, missing the Street’s call by $1.89 billion.

However, for Raymond James analyst Pavel Molchanov, the quarter was marked by the tilt back into positive territory for Chevron’s upstream and downstream income – $362 million for the former and $292 million for the latter. Additionally, Molchanov applauds the $3.1 billion of operating cash flow, enough to cover capital spending by an “impressive” 1.9x.

And while the 4-star analyst is “concerned about the slow pace of portfolio decarbonization and clean tech investments,” there are enough positives to convince Molchanov that Chevron is resilient enough to make it through the pandemic relatively unscathed.

“Given its upstream-weighted and oil-centric asset base, Chevron offers a higher degree of leverage than most of its peers to further recovery in oil prices,” Molchanov said. “We see the dividend as safe. Production growth is not a priority under current conditions, but there are plenty of medium term growth drivers (Permian, Vaca Muerta, Tengiz expansion, Gulf of Mexico exploration)… Free cash flow is tracking to be slightly positive in 2020, and it should be more solidly positive in 2021, based on futures strip pricing.”

Accordingly, there’s no change to Molchanov’s rating which stays an Overweight (i.e. Buy), while the $100 price target stays put, too. The implication for investors? Upside of 39%. (To watch Molchanov’s track record, click here)

The Street’s average price target comes in only slightly under Molchanov’s, and at $98.90, suggests potential upside of 38%. The analyst consensus rates the stock a Moderate Buy, based on 6 Buys and 4 Holds. (See CVX stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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