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Photography by Luke Sharrett / Bloomberg
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Oil investors do not like oil and gas stocks very much, but BMO analyst Daniel Boyd thought
Chevron
The shares can outperform because of their strong presence in the Permian Basin and the sustained growth of their dividends by 5%, he said Tuesday in a report initiating coverage of major oil companies.
Boyd was also positive on
Exxon
(symbol: XOM) because of its "best-in-class" upstream portfolio, but avoided full stock approval due to the valuation and downside potential of its 2020 guidance.
Boyd class Chevron (CVX) as Outperform and Exxon as Market Perform. The two shares rose respectively 1.2% and 1.1% Wednesday morning. the
S & P 500
was up 0.9%.
The story back. As Barron As noted last week, energy values have rarely been liked by investors.
Commodity prices are down, with a barrel of oil around $ 56 a barrel against $ 66 a barrel in April and natural gas falling 25% this year to its lowest level since 2016. Macro-economic concern weighs on oil and gas stocks. The trade war between the United States and China and the reverse yield curve with a warning of recession are raising growing concerns about the possibility that global growth will plummet and curb demand for # 39; energy.
Chevron shares are up about 6% in 2019 and Exxon shares are actually stable, while the broad S & P 500 is up more than 16% over the same period.
What's up. Boyd started on Chevron with a target price of $ 165, which is about 42% more than the current price. "Chevron offers investors reasonable dividend growth (3-6%) with one of the lowest risk profiles in the industry," wrote Boyd. "Lower risk comes from the strongest balance sheet, the break-even cash flow with the lowest dividend and many short-cycle investment opportunities."
On Exxon, Boyd admits that "the stock has underperformed in the last five years in relative terms. [return on capital employed] deteriorated, growth was lowest among peers and [capital expenditure] increased while the peers exerted more caution. "But he thinks these negative trends will" reverse "over the next three years as output growth upstream, driven by Permian and Guyana [debt-adjusted cash flow] growth per share, a key factor in the relative performance of equities. "
Look forward. Boyd's current problem with Exxon shares, however, is that his enterprise value over estimated earnings before interest, taxes, depreciation, amortization and exploration expenses next year is 7.3, which is a premium. compared to other major oil companies.
By comparison, Chevron trades 6.1 times the same measure and is, according to Boyd, "the quintessence of capital discipline," demonstrated by its ability to increase "its production online with peers but with less capital ". Sustained dividend growth will lead investors to re-evaluate and reverse the stock.
Write to Ben Walsh at [email protected]
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