Market Overview

BofA Upgrades Occidental, Downgrades Chevron

Share:
BofA Upgrades Occidental, Downgrades Chevron

BofA Securities considers oil stocks as "equities first, oil companies second." Weighing them on the basis of market, company-specific and commodity risks bodes well for some stocks, but not all.

“We reset [price objectives] higher across the board for a second time since the COVID crisis disrupted oil and equity markets; but strong share performance has left limited upside for some while for others, the risk profile is reset,” the research firm said Tuesday. 

The Analyst: Doug Leggate upgraded Occidental Petroleum Corporation (NYSE: OXY) to Buy and raised the price target from $18 to $32.

Leggate downgraded Chevron Corporation (NYSE: CVX) from Buy to Neutral and raised the target from $97 to $110.

The Occidental Thesis: Occidental has one of the highest risk profiles of the sector. However, the environment is working in its favor, Leggate said. (See his track record here.)

“Occidental is reset by the rapid recovery in oil prices at the front of the curve, and positioning the outlook for a return to free cash over the balance of 2020 and 2021 at strip prices,” the analyst said. 

The company’s free cash flow, “disposal opportunities,” capex and overhead reductions, board motivation and personnel changes are seen to justify further share price recovery, despite near-term volatility, he said. 

“We believe OXY now has line of sight to generate sufficient free cash as to comfortably navigate debt maturities that has been perceived as the biggest challenge facing the investment case.”

BofA forecast $7 billion in free cash flow from Occidental between 2020 and 2021. 

The Chevron Thesis: BofA values Chevron’s superior balance sheet and transparency on its capital needs.

“But with that transparency comes limits to our view of fair value, defined by discounted cash flow and with the estimated cost of capital full reset to pre-COVID levels,” Leggate said. 

“...Thus while we saw CVX as one of the expressions of an oversold energy sector at the peak of the market stress, the rebound has similarly moved the shares back to levels we see as fairly valued, albeit still a low risk play on a long-term oil recovery.”

CVX, OXY Price Action: At the time of publication, Chevron shares were down 2.87% at $100.30, while Occidental shares were down 6.19% at $22.89. 

Related Links:

Latest Ratings for CVX

DateFirmActionFromTo
Oct 2020Credit SuisseReinstatesOutperform
Oct 2020Morgan StanleyMaintainsOverweight
Sep 2020B of A SecuritiesUpgradesNeutralBuy

View More Analyst Ratings for CVX
View the Latest Analyst Ratings

 

Related Articles (CVX + OXY)

View Comments and Join the Discussion!

Posted-In: BofA Securities Doug Leggate energyAnalyst Color Upgrades Downgrades Price Target Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
ZZZScotiaBankMaintains27.0
FSVScotiaBankMaintains128.0
FNScotiaBankMaintains38.0
CSUScotiaBankMaintains1,600.0
CXOScotiaBankDowngrades43.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com