BMO Starts Chevron Shares With Outperform Rating, $120 Target

In a research note to clients, the brokerage said, "We have focused on Chevron's 20+ upstream and new growth investments, including the Permian. These assets are forecast to deliver production, margin, and cash flow growth, while forecast capital investment is decreasing and becoming increasingly more flexible."

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The analysts listed the following six factors to support the investment thesis:

• Positive organic free cash flow to manage its cash dividend based on $50 per barrel oil in 2017.
• Production growth to be based on non-conventional and brown field apart from an estimated 4 percent CAGR between 2015 and 2020.
• Cash margins improvement is expected by a maximum of $4 per barrel by the turn of the current decade based on Chevron's existing projects like deepwater and LNG.
• Delivering production growth through short-cycle non-conventional method by a maximum of 25 percent of its estimated production by 2025.
• Boost capital flexibility by probing short-cycle investment options like Permian.
• Drop in pre-productive capital deployment from 50 percent in 2015 to an estimated level of 25 percent in 2018.

The brokerage concluded by saying that Chevron has corrected internal capabilities and that cost overruns and poor delivery performance do not matter now.

At time of writing, Chevron was down 1.24 percent at $100.98.

Full ratings data available on Benzinga Pro.