UPDATE: BMO Capital Starts Chevron (CVX) at Outperform
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(Updated - September 13, 2016 8:53 AM EDT)
BMO Capital initiated coverage on Chevron (NYSE: CVX) with an Outperform rating and a price target of $120. Analyst Brendan Warn said he thinks Chevron has reached an inflection point and is entering a new era of higher-margin growth and decreasing pre-productive capital.
Warn wrote, "Our Outperform rating is based on Chevron's ability to:
- Generate positive organic FCF to cover the cash dividend at $50/bbl in 2017. Chevron is increasingly leveraged to a recovery in the oil price environment.
- Grow production at about 4% CAGR 2015-20E. Chevron is pacing some regional base asset investment, focusing on value over volume. Unconventional and brownfield will increasingly be prioritised.
- Improve cash margins. Our analysis shows that the delivery of existing conventional, LNG, and deepwater projects will improve cash margins by up to $4/bbl by 2020E.
- Deliver short-cycle unconventional production growth that can account for up to 25% of production by 2025E, increasing Chevron's capital flexibility.
- Increase capital flexibility with shorter-cycle investment opportunities, including the Permian, and improve balance sheet metrics.
- Decrease pre-productive capital employed (from 50% in 2015 to 25% in 2018E) and improve ROACE back to top-quartile performance."
Shares of Chevron closed at $102.25 yesterday.
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