On Monday, Jefferies maintained a positive outlook on Chevron (NYSE:CVX), raising its price target to $190 from the previous $184 while keeping a Buy rating on the stock. The financial firm anticipates a slightly weaker first quarter for Chevron, with cash flow per share (CFPS) expected to be around 4% below the consensus. This forecasted dip is attributed to timing effects, turnarounds, and working capital headwinds.
The analyst from Jefferies projects a weaker quarter for Chevron's downstream sector despite higher margins, due to heavy turnarounds estimated to cost between $250 million and $350 million. This comes in addition to a reversal of timing effects that had previously boosted downstream earnings by approximately $485 million in the fourth quarter of 2023.
U.S. production is also expected to be weaker, approximately 2% below consensus, impacted by around 20,000 barrels of oil equivalent per day (boepd) of downtime due to winter weather in North America.
This is on top of Chevron's guidance from the fourth quarter indicating that Permian volumes in the first half of 2024 would be 2-4% below those of the fourth quarter of 2023, with the DJ basin expected to decrease quarter over quarter.
Despite these setbacks, productivity in the Permian/DJ and international sectors remains strong, with the Tengizchevroil (TCO) West Qurna Phase 2 (WPMP) project set to start in the second quarter of 2024, remaining on schedule.
Furthermore, the analyst expects working capital builds in the first quarter due to tax payables, which should reverse later in the year, and minimal affiliate dividends this quarter. However, Chevron's share repurchases are forecasted to be near the high end of guidance, around $3 billion, with a margin of about 20%.
Regarding the acquisition of Hess Corporation (NYSE:HES) by Chevron, a shareholder vote is anticipated in the second quarter, which may influence buyback strategies. The deal is also awaiting approval from the Federal Trade Commission (FTC), and while Jefferies expects it to be approved, the closure of the deal could be delayed to the fourth quarter of 2024 due to arbitration over ExxonMobil (NYSE:XOM)'s potential Right of First Refusal (ROFR).
The consolidation of arbitration cases is seen as a positive sign for a potentially quicker resolution.
Lastly, the Jefferies analyst has updated estimates with Henry Hub (HH) and West Texas Intermediate (WTI) prices of $2.39/$3.50 per thousand cubic feet (mcf) and $79.88/$74.49 per barrel for 2024 and 2025, respectively. However, the firm's normalized pricing forecasts for Henry Hub and WTI at $4/mcf and $65/barrel remain unchanged.
InvestingPro Insights
As Chevron (NYSE:CVX) navigates a potentially weaker first quarter, per Jefferies' analysis, it's worth noting some key financial metrics and market insights that could interest investors. Chevron has demonstrated a strong track record with a market capitalization of $300.13 billion and a P/E ratio sitting at a comfortable 14.12, indicating a potentially undervalued stock when looking at the adjusted P/E ratio of the last twelve months as of Q4 2023, which is 13.18.
InvestingPro Tips highlight Chevron's consistency in rewarding shareholders, having raised its dividend for 36 consecutive years and maintained dividend payments for 54 years. This is complemented by the company's moderate level of debt and the ability of its cash flows to sufficiently cover interest payments. For those looking to invest, Chevron's stock trades with low price volatility, providing a relatively stable investment option.
With the company's next earnings date on April 26, 2024, investors can anticipate updates on performance and strategy. Chevron's dividend yield stands at a strong 4.03%, and analysts predict profitability for the year, backed by a profitable track record over the last twelve months.
For those seeking in-depth analysis and additional insights, InvestingPro offers more tips and a fair value estimate of $199.79 for Chevron, higher than current analyst targets. Interested investors can use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a total of 9 InvestingPro Tips for Chevron at https://www.investing.com/pro/CVX.
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