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Chevron Stock: Breakout Seems Imminent

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The energy sector took a big hit due to the COVID-19 pandemic. However, the world is crawling back to normalcy, even with concerns over the Delta variant persisting.

Chevron Corporation (CVX) is a quality name to consider among energy stocks, having risen 15.1% year-to-date. (See Chevron stock charts on TipRanks)

A breakout on the upside seems imminent for CVX. I am bullish on the stock.

Besides the upside potential, Chevron also has an annualized dividend of $5.36. This translates into an attractive yield of 5.43%.

Positive Outlook for Oil

According to the International Monetary Fund, the global economy is projected to grow at 6% in 2021 and 4.9% in 2022. This is likely to ensure steady upside for oil.

It’s also worth noting that in July 2021, OPEC and allies agreed on a gradual increase in production. The target is to end production cuts by September 2022. Even with this news, oil has remained firm. This is a clear indication of steady growth in global demand.

Another factor that’s likely to support upside in energy prices is expansionary monetary policies. With real interest rates remaining negative in most parts of the world, asset classes like precious metals, energy and commodities are likely to trend higher.

Overall, the trend for oil is bullish, and Chevron stock has ample positive catalysts.

Performance Despite Low Prices

Last year was rough in terms of average oil price. Brent averaged $41.70 per barrel, compared to $64.30 in 2019. Even with these oil prices, Chevron delivered operating cash flows of $10.6 billion.

For the current year, the U.S. Energy Information Administration expects oil price to average $68.70 per barrel. Furthermore, the estimate for 2022 is $66.

With this outlook, the company is likely to be a cash flow machine. It’s also worth noting that the company had proved reserves of 1.1 billion barrels as of 2020.

Healthy Balance Sheet

Chevron reported cash and equivalents of $7.5 billion at the end of Q2. This provides ample financial headroom to invest in exploration projects.

Also, for the first half of 2021, Chevron reported $11.2 billion in cash flow from operations.

Clearly, the company is well positioned to maintain dividends and pursue share repurchases.

Wall Street’s Take

According to TipRanks’ analyst consensus rating, CVX stock comes in as a Moderate Buy, with 10 Buys, and four Holds assigned in the past three months.

The average Chevron price target is $127.92 per share, implying 31% upside potential from current levels.

Concluding Views

Chevron stock seems to be in a phase of consolidation. Considering the asset base and balance sheet profile, the stock is well-positioned to trend higher.

In terms of risks, there might be a scenario for an economic slowdown due to the Delta variant. However, even if oil trades at around $60 per barrel, Chevron is positioned to generate healthy free cash flows.

Overall, CVX stock seems to be worth holding in the portfolio for upside, as well as for regular dividend income.

Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Chevron Stock: Breakout Seems Imminent appeared first on TipRanks Financial Blog.

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