Because the world continues to run on oil despite efforts at infrastructural diversification, integrated hydrocarbon energy company Chevron (NYSE:CVX) already presents a relevant opportunity. The worsening geopolitical landscape only strengthens the case for potential gains in CVX stock, leading me to a bullish stance on this oil and gas giant.
Geopolitical Flashpoints Bolster the Bullish Case for CVX Stock
Undeniably, the most pressing issue at the moment is Iran’s attack against Israel over the weekend. On Friday, just the threat of Iran going through with its drone and missile strikes led to a 1% rise in oil prices. With posturing turning into outright action, the situation could now escalate into a serious supply disruption. In turn, that would likely move CVX stock higher.
To provide a quick background, Saturday’s attack materialized less than two weeks following a suspected Israeli strike on the Iranian embassy in Damascus, Syria. What angered Iran was that the strike killed seven of the country’s military advisors, including three senior commanders. And because diplomatic compounds legally represent sovereign territory, Iranian officials framed their strike as retaliation for the embassy bombing.
Of course, what makes the matter problematic for global oil supplies is Iran’s threat to shut down the Suez Canal. According to the U.S. Energy Information Administration, the Suez Canal and the Bab al-Mandab Strait accounted for 8.8 million barrels per day of total oil flows in the first half of last year.
However, oil represents a critical and presently indispensable commodity. While EVs have seen their sales rise dramatically over recent years, their collective global share of the automotive market was about 14% in 2022, according to the International Energy Agency (IEA). As stated earlier, the world continues to run on oil, especially in the case of combustion-powered vehicles.
This dynamic symbolizes a massive upside catalyst for CVX stock. Because of Chevron’s integrated business, it covers the entire value chain of the hydrocarbon industry: upstream (exploration and production, midstream (storage and transportation), and downstream (refining and marketing).
Since the majority of the global population has little choice but to pay for higher energy costs, CVX stock will likely be one of the few beneficiaries of this awful situation.
Various Other Factors Conspire to Lift Chevron
Even if the Israel and Iran conflict never materialized, the geopolitical front would still be red hot for CVX stock. Notably, Russia’s belligerence in Ukraine shows no sign of abating. In a bid to stymie the Russian war machinery, Ukraine developed its own long-range drones to attack the invading nation’s energy assets.
Recently, the IEA warned that such strikes could mean potential disruptions for global energy markets. Per the agency’s estimates, nearly 500,000 to 600,000 barrels a day of Russian crude capacity could already have been negated at the current juncture. And if that wasn’t enough, restoration of the impacted capacity could take weeks, exacerbating the supply dynamic.
Even more startling, CVX stock may not even need the geopolitical framework for its value to rise. Mother Nature wants her name to be known, with experts projecting an “extremely active” hurricane season this year. Such inclement conditions could easily impact critical U.S. supply chains, which would come at a sensitive time.
According to the latest economic projections, the demand for oil will likely gather pace in the second half. Therefore, consumers who depend on hydrocarbons – basically everyone – will face a trifecta of pain: geopolitics, economics, and meteorological phenomena may all conspire to raise energy prices.
Fundamentally, that’s not necessarily great for broader market sentiment. Americans (and citizens of other nations) are struggling with rising consumer prices. An elevated energy market is the last thing consumers need.
Given the present reality, it’s possible that moving forward, consumers will cut as many items as possible from their budgets. However, what cannot be cut is the energy bill. Again, with most people driving combustion-powered vehicles, petroleum products should be in high demand. So, CVX stock features a legitimate upside prospect despite the broader ugliness.
Forward Projection Adjustments are Likely Coming Soon
Curiously, analysts don’t anticipate much positivity from CVX stock in the years ahead. For Fiscal year 2024, they’re looking for earnings per share (EPS) of $12.94 on revenue of $197.48 billion. These are disappointing stats compared to last year’s EPS of $13.13 on sales of $200.95 billion.
However, the above metrics represent the consensus view. Given the latest developments, the most optimistic targets seem likely. In that case, investors are looking at EPS of $14.75 on sales of $223.14 billion. And in the following year, earnings could rise to $18.79 per share on revenue of $234.96 billion.
Is CVX Stock a Buy, According to Analysts?
Turning to Wall Street, CVX stock has a Strong Buy consensus rating based on 12 Buys, four Holds, and zero Sell ratings. The average CVX stock price target is $181.87, implying 16.3% upside potential.
The Takeaway: CVX Stock Is Positioned to Shoot Higher
While it’s always an uncomfortable topic to discuss geopolitical flashpoints in the context of investing, with Chevron, it can’t be helped. With multiple conflicts threatening to disrupt critical supply chains, CVX stock is simply positioned to move higher. Other factors, such as economic concerns and even the weather, exacerbate the upside narrative. As a result, analysts almost certainly need to update their forward projections to reflect the new reality.
