UBS Upgrades Chevron, Praises Stable And Low-Risk Business

Chevron Corporation CVX's stock has taken a beating in the past year after a rally in oil prices failed to have legs. However, one analyst said the sell-off has finally created a buying opportunity.

The Analyst

UBS analyst John Rigby upgraded Chevron from Neutral to Buy rating and set a $135 price target for the stock.

The Thesis

Traders may have missed the bottom in Chevron stock, which has bounced back by 4.2 percent in January, but Rigby said the 2019 strength has helped reassure investors in a volatile oil market.

“The volatility in the macro environment emphasizes the value of a conservative, through-cycle, sustaining business and financial model however – one clearly embodied in Chevron's strategy,” Rigby wrote in a note.

Rigby said Chevron should have no problem funding both its dividend and its organic capex over the next year even if Brent crude oil prices fall below $50 per barrel. He said Chevron’s share buyback program highlights the company’s impressive free cash flow generation, even in a difficult environment. Management has also made clear growing the dividend is a top priority.

Chevron’s upstream-focused, oil-oriented portfolio and its industry-leading Permian assets also emphasize the stock’s low-risk nature.

Rigby is anticipating oil prices will continue to trade in a range between $60 and $80, and Chevron’s production outlook through 2022 is safe. He said this type of reliability and stability is exactly what oil investors are looking for in the current climate.

Price Action

Chevron traded higher by 2 percent to $114.14 Friday afternoon.

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