Jefferies Met With Chevron's CEO; Here's What Happened

In a report published Friday, Jefferies analysts maintained a Buy rating on Chevron Corporation CVX, with a price target of $125, after a meeting with the company's CEO John Watson. In the report Jefferies noted, "The company's message was consistent with the message at its recent analyst presentation: balance the cash cycle by 2017 and deliver the projects that will drive production to 3.1 mbd by 2017. Mr. Watson was clear in his view that the industry is an attractive place to invest, and that while the company will take actions to deal with the current low oil price environment its long-term strategy is intact." The CEO indicated that Chevron's highest priority was maintaining a "progressive dividend" and that it intends to use free cash flows to cover the dividend by 2017. With major capital projects are completed, Chevron has the flexibility to reduce capital spending. The analysts expect capex to decline from $35B this year to $30B or lower by 2017. "We expect the company will reach its target of 3.1 mbd of production by 2017, an average 7.5% growth in 2016/17. The company reiterates the target of first gas into the Gorgon project in 3Q with first commercial cargos before year end. We expect Chevron's production CAGR will average 5% through 2020," the analysts wrote. Although Chevron's balance sheet is among the strongest in the sector, the analysts expect leverage to peak at 17 percent in 2017. "Given Chevron's strong organic growth outlook, we do not expect them to be in the market for a large acquisition," the report said. Chevron "remains our top pick amongst the super-majors…We believe Chevron's project queue will drive a sector leading CAGR of 5% through 2020," the analysts commented.