BofA Securities has updated its coverage on Chevron (NYSE: NYSE:CVX), initiating with a Buy rating and setting a price target at $168.00.
The firm pointed out that Chevron's stock has seen a decrease to the lowest comparative level in years due to several factors.
These include the overhang from its association with Hess Corporation (NYSE:HES) and risks perceived to be of low probability but high impact, such as potential OPEC+ cuts in Kazakhstan, the Gulf of Mexico Biological Opinion ruling, and further legislation in Colorado.
The analyst from BofA Securities pointed out the underestimation by the Street of Chevron's cash flow inflection expected in 2025/2026. The underestimation is attributed to the lack of clarity regarding affiliate cash flows from Kazakhstan and CPChem.
According to the analyst's model, Chevron could have the ability to pay out $16.5 per share in free cash flow in 2027, assuming a Brent crude oil price of $70, compared to $10 per share today.
In other recent news, Chevron has experienced a flurry of activity with its financials and operations. Mizuho Securities anticipates a third-quarter earnings miss for Chevron, predicting a shortfall of about 6% compared to market expectations. However, Mizuho remains optimistic about Chevron's long-term outlook, noting a quarter-over-quarter upstream volume growth of about 1%.
Chevron has also been busy with strategic moves, including the divestiture of its Canadian assets for $6.5 billion and increasing its quarterly share buyback program. The company is also making progress with its acquisition of Hess Corporation, which is expected to be finalized by the third quarter of 2025 according to the current arbitration timeline.
TD Cowen has maintained its Hold rating and $160.00 price target for Chevron following the sale of its Canadian assets. This transaction aligns with Chevron's strategy to offload $10 billion to $15 billion in assets by 2028. The assets sold, located in Alberta, Canada, contributed 84,000 barrels of oil equivalent per day to Chevron's production in 2023.
In response to Hurricane Milton, Chevron evacuated personnel and ceased operations at its Blind Faith platform in the Gulf of Mexico. However, the company's other Gulf operations remain unaffected.
InvestingPro Insights
The BofA Securities analysis aligns with several key metrics and insights from InvestingPro. Chevron's financial health appears robust, with a market capitalization of $272.01 billion and a P/E ratio of 14.69, suggesting a relatively attractive valuation in line with the analyst's view.
InvestingPro Tips highlight Chevron's strong dividend history, having raised its dividend for 36 consecutive years and maintained payments for 54 years. This consistent dividend growth, coupled with a current dividend yield of 4.38%, supports the analyst's focus on Chevron's cash flow potential and shareholder returns.
The company's ability to cover interest payments with its cash flows and operate with moderate debt levels, as noted by InvestingPro, reinforces the positive outlook on Chevron's financial stability. This aligns with the BofA Securities expectation of increased free cash flow in the coming years.
While the article mentions recent stock devaluation, InvestingPro data shows a 3.71% price total return over the last month, indicating some recent positive momentum. The InvestingPro Fair Value of $161.43 and the analyst fair value target of $169 both suggest potential upside from the current price levels, supporting the Buy rating.
For investors seeking a deeper understanding of Chevron's prospects, InvestingPro offers 9 additional tips, providing a comprehensive view of the company's financial health and market position.
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