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3 Reasons Goldman Just Added Chevron To Its America's Conviction List

Wayne Duggan

Chevron Corporation (NYSE: CVX) threw in the towel on its bid for Anadarko Petroleum Corporation (NYSE: APC) after rival Occidental Petroleum Corp. (NYSE: OXY) stepped in with a higher bid. Chevron received a $1 billion termination fee from Anadarko in the process, and one Wall Street analyst said Chevron is just fine without Anadarko.

The Analyst

Goldman Sachs analyst Neil Mehta reinstated coverage of Chevron with a Buy rating and $144 target and added the stock to America’s Conviction List.

The Thesis

Mehta listed three reasons why Goldman is bullish on Chevron:

  1. The startup of both Gorgon and Wheatstone LNG operations has significantly boosted cash flow from 2016 levels. Chevron will begin getting meaningful cash flow from its Permian acreage starting in 2020.
  2. The Anadarko deal is the latest demonstration of Chevron’s commitment to capital discipline. Chevron’s latest guidance suggests between $19 billion and $22 billion in annual capex from 2021 to 2023, well below prior peak annual spending in the $40 billion range.
  3. A strong balance sheet and plenty of cash flow create major capital return opportunities. Goldman is projecting a combined buyback and dividend yield of 6.4 percent, on the high end of other U.S. and Canadian oil majors.

Mehta isn't concerned about long-term production growth.

“We are confident that between 2019-2023 (the end of the company’s current production/capex guidance outlook), Chevron will be able to announce new sources of growth that we believe will address investor concerns about the long-term production outlook, whether that is organically or inorganically,” he wrote in a note.

Price Action

Chevron shares traded around $121.06 on Wednesday.

Related Links:

Investors Finally Warming Up To Energy Stocks

Wall Street Weighs In On Chevron Following Anadarko Deal

Latest Ratings for CVX

Date Firm Action From To
May 2019 Reinstates Buy
May 2019 Reinstates Buy
Apr 2019 Maintains Buy Buy

View More Analyst Ratings for CVX
View the Latest Analyst Ratings

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