2018: A 'Year Of Delivery' For Chevron?

Apart from optimistic oil forecasts, an analyst said Chevron Corporation CVX stands to benefit from several initiatives the company undertook in 2017.

The Analyst

BMO Capital Market analyst Brendan Warn upgraded shares of Chevron from Market Perform to Outperform and increased the price target from $120 to $140.

The Thesis

Chevron went into harvesting mode in 2017, delivering its LNG megaprojects and lowering the amount of preproductive capital from 50 percent to 25 percent, Warn said in a Thursday note. (See the analyst's track record here.) 

Chevron's 2018 is a year of delivery, with the ramping of projects, an American tax cut and higher oil prices taking the company to a major cash inflection point, the analyst said. BMO expects material share buybacks that will drive stock gains. 

Warn projects a post-dividend surplus cash yield of 4 percent, Chevron's highest since 2010. 

Chevron's Permian positioning — large, high-margin and with a low-to-zero royalty acreage position — allows the company to de-risk its capital investment program from long-cycle projects to a more flexible spending profile, Warn said. He estimates Chevron's Permian production will surpass 500 kio barrels of oil equivalents per day by 2020.  

Additionally, BMO views Gorgon and Wheatstone LNG as major cash contributors for Chevron. 

BMO prefers Chevron over Exxon Mobil Corporation XOM on the basis of better expectations for post-dividend surplus cash flows for the former, Warn said. 

The Price Action

Over the past year, shares of Chevron are up over 13 percent.

Chevron wasup 3.26 percent at $132.82 in Thursday afternoon trading. 

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