3 Reasons You Should Buy Chevron

There is potential for several positive catalysts over the next 12 months that could unlock value at Chevron Corporation CVX, Goldman Sachs’ Neil Mehta said in a recent report. He upgraded the rating on the company from Neutral to Buy and added the stock to the Conviction List. The 12-month price target has been raised from $108 to $118, implying 18 percent total return.

First Positive Catalyst

Chevron has experienced a decade of relatively flat production. Analyst Mehta believes the company is now poised for solid volume growth, driven by:

• Australia/Africa LNG projects, “which now appear on track for growth.”
• The Permian in the United States.
• From Tengiz in Kazakhstan in the long term.

Second Positive Catalyst

Mehta expects Chevron to generate strong FCF growth, which would more than cover the dividend yield of 4.2 percent. The solid FCFs would be driven by new projects ramping and oil prices improving to $50–$60 per barrel WTI (West Texas Intermediate).

Third Positive Catalyst

The analyst expects Chevron’s multiples to expand versus Exxon Mobil Corporation XOM on the back of ROCE [return on capital employed] improvement. In another note, Mehta downgraded the rating on ExxonMobil from Buy to Neutral and removed it from the Conviction List.

Chevron had recently announced its Q3 earnings significantly ahead of expectations. After two years of declining profits, the company is optimistic in view of the continued recovery in commodity prices, said an article in The Intelligencer.