UPDATE: Morgan Stanley Upgrades Chevron (CVX) to Overweight
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(Updated - November 1, 2016 9:41 AM EDT)
Morgan Stanley upgraded Chevron (NYSE: CVX) from Equalweight to Overweight with a price target of $130.00 (from $113.00). Analyst Evan Calio sees differentiated growth and free cash flow outlook over 2017-19.
"We upgrade CVX to Overweight, recognizing CVX's differentiated production growth and FCF profile and deeper unconventional portfolio vs. all of its Global Majors peers," said Calio. "We believe the differentiation is three-fold: (1) largest FCF inflection in 2017-19 from project start-ups (supports distribution growth); (2) the ability to most effectively recycle future cash flows in the core Permian, best short-cycle opportunity globally; (3) higher oil leverage into a cyclical price recovery."
The analyst added, "Start-ups and subsequent ramps of long-cycle projects, primarily Wheatstone and Gorgon, should deliver incremental ~400Mboed by 2018 and concomitant capex reduction (by $7-8Bn YoY in 2017). This is the largest FCF inflection in the group. See Supermajor Showdown #5: Unpacking the Majors Field-by-Field for deep-dive comparison of global major's portfolio. Further, the final ramp-up of these low decline projects should drive CVX's 2016-18 production growth to 16%, the highest among Global Majors. This near-term growth is a culmination of a multi-year outsized capex program that is unlikely to be repeated. Going forward, CVX’s investments and growth is set to shift to shorter-cycle opportunities, reducing execution risk, improving capital efficiency and enhancing return on capital. The inflection in FCF and evolution of CVX’s portfolio should support relative and continued dividend growth, management’s stated top priority. We estimate that over 2017-18, CVX offers the highest dividend cover in the group, at 170% vs. 100% peer average."
Shares of Chevron closed at $104.75 yesterday.
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