Wall Street Weighs In On Chevron's Mixed Quarter

Chevron Corporation CVX reported a fourth-quarter earnings beat and record oil & gas production. Lower expenses helped trigger a 20 percent rise in EPS to $1.95, but quarterly revenue of $42.35 billion came up short of consensus estimates of $46.13 billion.

Several Wall Street analysts weighed in on Chevron following the mixed quarter. Here’s a sampling of what they’ve had to say.

Financial Flexibility

Bank of America analyst Doug Leggate said investors are still waiting on a clear vision for the future, which will likely come following a strategy review in March.

“For now, CVX has restarted share buybacks with ample free cash available to sustain a planned rate of ~$3bn annually for the foreseeable future; but early guidance for 2019 that suggests production will grow 4%-7% means production stagnates at 4Q18 levels,” Leggate wrote in a note.

UBS analyst Jon Rigby said Chevron’s impressive cash flow and strong balance sheet give the company plenty of financial flexibility.

“The Permian plus Tengiz should guarantee decent top-line growth for the med term and the strong cash flow and balance sheet give management an awful lot of discretion on strategic direction although the step-up in the buyback and the acknowledgement of the virtue of the hard-won low cash neutrality suggest to us that the approach will be a balance of new opportunity and FCF,” Rigby wrote.

Buybacks & Capex

Morningstar analyst Allen Good said that outside of another collapse in oil prices, investors should expect more aggressive buybacks.

“We expect cash flow to rise during the next five years thanks to improving oil prices, cost-cutting, and increased production,” Good wrote.

CFRA analyst Stewart Glickman said Chevron appears to be taking a relatively conservative approach to capex in the near term, and 70 percent of the company’s 2019 spend is expected to turn into cash within the next two years.

“We see this as a relatively short-cycle focus that likely incurs lower execution risk than the level of risk that CVX elected to take on over the last few years (from Gorgon and Wheatstone LNG development projects),” Glickman wrote.

Ratings And Price Targets

• Bank of America has a Neutral rating and $127 target.
• UBS has a Buy rating and $135 target.
• Morningstar has an Undervalued rating and $136 target.
• CFRA has a Buy rating and $130 target.

Shares traded at $119.41 Monday afternoon.

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