Chevron Hits 52-Week High at $132.00 - Analyst Blog

Shares of Chevron Corp. CVX hit a 52-week high of $132.00 on Jun 19. In fact, the San Ramon, CA-based energy giant has seen its stock price climb 6.32% since the beginning of the year. This price appreciation can be attributed to consistency in its earnings/cash flows, attractive fundamentals and a shareholder-friendly financial policy.

Why the Bullishness?

Chevron's current oil and gas development project pipeline is among the best in the industry – targeting volume growth of 20% by 2017 (from the 2013 level) – driven by the big Australian LNG projects (Gorgon and Wheatstone), as well as deepwater developments in the U.S. Gulf of Mexico.

Moreover, Chevron has made significant progress in re-balancing its asset portfolio by divesting non-core and high-cost assets. Recently, the company divested a 25% non-operated interest in an oil producing acreage in southern Chad, which included 7 oilfields situated in the Doba Basin with an average net yield of 18,000 barrels of oil per day, as well as a 21% non-operated interest in a pipeline which transports oil to the Cameroon coast and other related marine facilities.

Additionally, Chevron's financial flexibility and strong balance sheet are real assets in this highly uncertain economy. The company remains in excellent financial health, with more than $15 billion in cash on hand and an investment-grade credit rating with a debt-to-capitalization ratio of just over 13%. Furthermore, Chevron has established a track record of conservative capital management and cash returns to shareholders through a growing dividend, which currently yields an attractive 3.2%.  

However, we remain concerned as Chevron has pegged its 2014 capital budget at a massive $39.8 billion, which is expected to substantially increase the company's leverage and deteriorate its credit metrics. Additionally, the increasing capital intensity of Chevron's operations may result in reduced returns going forward.

This accounts for Chevron's current Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Stocks to Consider

With Chevron shares trading at a 52-week high, any upside from here may be limited. One can look at better-ranked players in the energy sector like Ultra Petroleum Corp. UPL, Matrix Service Company MTRX and Encana Corp. ECA. All these stocks sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CHEVRON CORP CVX: Free Stock Analysis Report
 
MATRIX SERVICE MTRX: Free Stock Analysis Report
 
ENCANA CORP ECA: Free Stock Analysis Report
 
ULTRA PETRO CP UPL: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research