Bank Of America And Deutsche Bank Disagree On Chevron

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Two Wall Street firms had very different views of Chevron Corporation CVX following meetings with the company's management.

Deutsche Bank

Deutsche Bank analyst Ryan Todd maintained a Buy rating and $120 price target on the stock. Todd commented that there were "signs of encouragement" following the meeting.

"Near-term cash burn remains challenging optically, and as with Exxon Mobil, the post-2018 outlook remains somewhat uncertain, but we view CVX as relatively attractive amongst mega-caps, whose coming volume and cash flow inflection point is well positioned for a gradual recovery in crude." according to Todd.

Todd noted that 2017 capex projections were lowered from $40 billion to $30 billion with no change to the 2017 production target of 3.1 million b/d.

In a base case scenario, Deutsche Bank expected $75/bbl WTI in 2017 with CVX generating a 4.7 percent FCF yield versus a 3.5 percent yield at Exxon Mobil.

Any upside to the outlook for crude could support a "meaningful share repurchase" with each $5/bbl increase in crude prices resulting in $2.35 billion of additional FCF, according to Todd.

Bank Of America

At Bank of America, analysts led by Doug Leggate came away with a different impression.

Leggate felt that "in a strip environment there is little absolute value offered by Chevron at current levels."

Bank of America also focused on cash-burn and noted that it was reduced to approximately $18 billion through 2017, however, the offsets from lower capex demonstrated a margin improvement outcome that was "no different than presented in 2014 – and in fact, stands slightly below" the firm's "previous estimates for the post 2017 portfolio," according to Leggate.

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The analyst note indicated that under the firm's current assumptions, which included an approximate 20 percent reduction in assumed costs, CVX was fairly valued at $101.

Leggate concluded that "perhaps a greater issue for CVX specifically, is the challenge to resource integrity given that including the contributions of the giant LNG developments – now essentially headed for completion on a 2 year time line – reserve replacement in the past decade has been less than 100 percent! What will this look like at $70 oil without similar large scale developments to fall back on?"

Bank of America maintained an Underperform rating and cut the price target from $105 to $101 on the stock.

Chevron recently traded at $103.14, up 0.22 percent.

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Posted In: Analyst ColorPrice TargetAnalyst RatingsBank of AmericaDeutsche BankDoug LeggateRyan Todd
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