Chevron Has 'Significant Strategic Advantage,' MKM Says In Bullish Initiation

Chevron Corporation CVX is expected to generate free cash flow of around $1.3 billion in 2020 and $10.1 billion in 2021, and its “preserved financial capacity” is a “significant strategic advantage,” according to MKM Partners.

The Chevron Analyst: John Gerdes initiated coverage of Chevron with a Buy rating and $121 price target. 

The Chevron Takeaways: Between 2022 and 2025, the company could generate about 3% compounded annual growth in its cash flow per share and around 12% average annual free cash flow yield, Gerdes said in a Wednesday initiation note. 

“As a consequence of a 65%-70% higher cash operating margin and competitive equity production-normalized capital intensity, Chevron’s full-cycle return of 190%-195% is significantly above the industry median of 125%,” the analyst said. 

Chevron is acquiring Noble Energy, Inc. NBL in an all-stock transaction.

The acquisition, which is expected to close in early October, “provides complementary assets in the Delaware Basin and internationally, while establishing a leasehold in the DJ Basin,” he said. 

MKM expects Chevron to achieve around $300 million in pre-tax annual acquisition synergies, or about $2.7 billion of incremental value.

CVZ Price Action: Shares of Chevron had slipped 0.50% to $71.59 at the time of publication Thursday.

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