Chip Chipman | Bloomberg | Getty Pictures
A floorhand operates a Chevron oil drilling rig close to Taft, California.
The funding financial institution thinks shares of Chevron may rise as a lot as 21 p.c based mostly on its 12-month worth goal of $135. The inventory popped $1.65, or 1.5 p.c, to $113.61 on Friday.
Oil costs plunged greater than 40 p.c from peak to trough within the last quarter of 2018. UBS says the volatility reveals the worth of a “conservative” and “sustaining enterprise and monetary mannequin” embodied by Chevron.
Regardless of a 12 p.c drop in Chevron’s inventory worth throughout the oil worth pullback, “we consider that that the intrinsic worth of the shares is materially unaffected; that the monetary and working mannequin of Chevron is explicitly constructed to deal with such a volatility; and that absent a fabric and structural change within the oil market (which we do not consider is the case) the share worth weak spot provides an attention-grabbing entry level,” UBS analyst Jon Rigby wrote in a analysis be aware on Friday.
UBS highlights Chevron’s potential to fund each capital expenditures and dividend funds with Brent crude futures at $50 a barrel — about $12 beneath the present worth. The financial institution says capital expenditures stay “beneficiant” and Chevron’s debt relative to fairness is low in comparison with friends, giving the corporate the flexibility to make the most of alternatives as they come up.
Chevron’s asset portfolio can also be “enviable,” within the financial institution’s view. The beginning-up of liquefied pure fuel initiatives will assist the corporate generate money, whereas it is “industry-leading” place within the Permian basin, the most important U.S. shale oil subject, reduces dangers. That offers Chevron time to think about investments in capital-intensive gas refining amenities and offshore oil and fuel initiatives.