Why the Majority of Analysts Rate Chevron a ‘Buy’


Mar. 11 2016, Updated 8:07 a.m. ET

Analyst ratings for Chevron

Chevron’s (CVX) analyst ratings show that 52% of the surveyed analysts covering the stock rate Chevron a “buy.” Around 40% rate it a “hold.” The highest 12-month price target for CVX stands at $122, indicating a 35% gain from current levels. However, 8% of analysts rate Chevron (CVX) a “sell.” The lowest price target of $76 implies a 16% fall. The average 12-month price target stands at $94 showing a 4% rise from current levels.

Exxon Mobil (XOM), BP (BP), and Royal Dutch Shell (RDS.A) have been rated as a “buy” by 32%, 38%, and 69% of analysts, respectively. The iShares Core S&P Total U.S. Stock Market ETF (ITOT) has ~6% exposure to energy sector stocks including XOM and CVX.

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Chevron’s cost, capex, and divestment plans

Chevron (CVX) is currently focusing on reducing its operating and capital costs and re-churning its portfolio. CVX has taken measures to cut costs across the supply chain. Per CVX, operating expenses have been reduced by $2 billion in 2015 over 2014. And Chevron expects another $2 billion in reductions in 2016. Chevron has also cut its total capital and exploratory budget for 2016 to a range of $25 billion–$28 billion, down from $34 billion in 2015. The company has cut capital and exploratory spending for 2017–18 even further to a range of $17 billion–$22 billion per year.

Plus, the company has churned its portfolio to retain only competitive projects. Proceeds from asset sales amounted to $11.5 billion in 2014–15. Of this, $6 billion was from downstream and $5.5 billion was from the upstream segment. CVX targets proceeds to the tune of $5 billion–$10 billion in 2016–17 from its asset sales program.

CVX has undertaken cost reduction programs, cut capex, and divested non-strategic assets to combat the lower oil price scenario. The tough steps that Chevron has taken will help the company to weather the low energy price storm, and will likely make it more profitable in a strengthening oil price scenario. If oil starts its upward journey, Chevron, with production growth insight and a strong projects portfolio, could likely emerge as a fundamentally stronger player. No wonder the majority of analysts rate Chevron as a “buy.”


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