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Chevron (CVX) Upgraded to Buy on Impressive Free Cash Flow

Zacks Equity Research

On Dec 27, Chevron Corporation CVX was upgraded to a Zacks Rank #2 (Buy).

Why the Upgrade?

Earnings estimate revisions are at the heart of Zacks’ investment philosophy. Stocks that have recently had their estimates revised upward by analysts tend to outperform the market in the next nine to 12 months.

Over the last 30 days, the Zacks Consensus Estimate for earnings for the fourth quarter has been revised upward from $1.14 to $1.19. Also, for 2017, estimates were revised from $4.25 to $4.33.

Chevron has an impressive earnings surprise history. The energy giant managed to surpass the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 1.8%.

Also, we have noticed a massive improvement in Chevron’s overall operations. Free cash flow — calculated after deducting capital expenditure from net cash flow operations —  has been steadily improving. The company’s trailing 12-month free cash flow as of Sep 30, 2017, was $4.4 billion against negative numbers reported in the prior years.  

 

 

Investors should note that Chevron’s existing oil and gas development project pipeline is among the best in the industry — targeting volume growth of 4-9% in 2017. This is driven by the big Australian LNG projects (Gorgon and Wheatstone), as well as deepwater developments in the U.S. Gulf of Mexico and the Permian operations. In particular, with increasing amounts of capital spending devoted to the lucrative unconventional play over the coming years, production from the Permian region is expected to be strong.

Recovery in oil price has also benefitted the company’s upstream operations. Crude recently traded at $59.64 per barrel, way higher than the historical low mark of $26.21 per barrel recorded on February 2016.

Price performance of Chevron, belonging to the Zacks Oil International Integrated industry, is also impressive. Year to date, the stock has rallied 6.7%, outperforming the larger rival Exxon Mobil Corporation’s XOM 7.1% decline.

Other Stocks to Consider

Other prospective stocks in the energy sector include Lonestar Resources US Inc. LONE, and Northern Oil and Gas, Inc. NOG.  Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.   

Headquartered in Fort Worth, TX, Lonestar is an upstream energy player. The company is expected to post year-over-year earnings growth of 81.3% in 2017.

Based in Minnetonka, MN, Northern Oil is an upstream energy player. The company’s 2017 revenues are estimated to grow almost 48%.

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Chevron Corporation (CVX) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Northern Oil and Gas, Inc. (NOG) : Free Stock Analysis Report
 
Lonestar Resources US Inc. (LONE) : Free Stock Analysis Report
 
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