Goldman Sachs downgraded Chevron stock on Tuesday.
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For the past few years, Chevron has been the default stock for many investors looking to gain exposure to oil and gas without taking a big risk. Chevron’s balance sheet is considered safer than those of its competitors, and Wall Street has believed its dividend safe even during the depths of the coronavirus crisis.
But despite Chevron stock’s (ticker: CVX) 5% dividend yield, some of its competitors are in better shape and trading at more discounted valuations. On Tuesday, Goldman Sachs analyst Neil Mehta downgraded Chevron to Neutral from Buy, recommending that investors look elsewhere for larger gains. Chevron stock remains relatively attractive, but other stocks now stand out more, he argues. That includes Exxon Mobil (XOM), ConocoPhillips (COP) and European majors like BP (BP), Royal Dutch Shell (RDS.A), and Total (TOT).
“To be clear, we do not view the Chevron valuation as expensive on an absolute basis or versus history,” Mehta wrote. “We simply see better total return elsewhere among global oils after multiple years of strong performance.”
Mehta values Chevron at $113. The stock fell 0.9% on Tuesday to $103.58. Chevron has gained 23% this year.
Chevron is more expensive on a price-to-earnings and free-cash-flow-yield basis, Mehta writes. And because the analyst thinks oil prices will stay relatively high, he says investors should consider slightly riskier names. Exxon stock has 8% more upside than Chevron, Mehta argues. And the European majors have 36% more upside, on average.
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