Chevron has won praise from Wall Street for keeping its debt relatively low.
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The price of oil is likely to stay high for a while, and one of the best ways to play it is by buying Chevron . UBS analyst Jon Rigby upgraded his rating on the shares to Buy from Neutral on Monday as the bank increased its medium- and long-term targets for oil prices.
Oil prices have been trading around $80 a barrel for the past month, and UBS now thinks that those levels will hold. The bank changed its forecasts for prices for 2022 and 2023. For 2022, it raised its target to $81 from $63 and for 2023, it increased the target to $80 from $68. In addition it sees longer-term prices averaging $75 a barrel, up from a previous expectation of $60.
In a separate note, Rigby explained that the energy transition and general investor hesitance has made the “hurdle” rate higher for oil projects. To convince companies to start new projects, oil prices will have to rise to higher levels. He thinks that the current state of the natural gas market — where prices have recently hit multiyear highs — represents a “red flag” for oil. While the energy transition will eventually dent demand, “we anticipate oil demand continues to grow at least until the late 2020s,” he wrote.
Chevron (ticker: CVX) has kept its debt relatively low compared with peers, and is now in particularly good shape to reap the rewards of higher prices. The company has been buying back stock, and Rigby expects it to increase its dividend. The dividend yield is now 4.6%.
Rigby also likes Chevron’s plans to address its climate impact, which are less aggressive than some peers. The company is investing in areas like renewable fuels and carbon capture, but has signaled that it is “sticking to activities more closely linked to existing legacy activities,” Rigby wrote.
His price target is $125. The stock was up 2.1% on Monday, to $116.59.
Write to Avi Salzman at [email protected]
