Wolfe Research upgrades Chevron to Outperform on strong cash flow outlook

Investing.com -- Wolfe Research upgraded Chevron to "Outperform" from "Peer Perform," saying a recent pullback in the oil major's shares has created an attractive entry point as improving long-term free cash flow prospects are not fully reflected in the stock price.

The brokerage assigned a price target of $210, implying roughly 27% upside from the stock's July 1 closing price of $165.69. It said commodity price volatility has obscured improvements in Chevron's long-term cash flow visibility, leaving the shares pricing in a long-term Brent oil price below $60 per barrel, compared with a normalized forward curve closer to $70.

Wolfe said Chevron's investment case has strengthened due to multiple new development opportunities secured this year, including a potential ninth phase of development in Guyana and projects in Venezuela, Libya and Iraq that could extend production growth beyond 2030. The brokerage also expects Guyana to reach a key free cash flow inflection point in the second half of 2026 following the startup of the Uaru project, improving the company's resilience to weaker oil prices.

The brokerage said Chevron's acquisition of Hess is beginning to generate meaningful financial benefits, with Guyana's free cash flow expected to more than cover dividends associated with the shares issued for the deal. It estimates Guyana will become Chevron's largest contributor to free cash flow, helping offset concerns over the possible expiration of the company's Tengiz contract in Kazakhstan in 2033.

While Wolfe assumes the Tengiz contract expires in its base-case valuation, it said that outcome is already reflected in Chevron's share price and any contract extension would represent additional upside. The brokerage estimates an extension on less favorable terms could increase its valuation by 6% to 8%, while an extension under existing terms could add about 12%.

Wolfe added that Chevron's expanding portfolio of growth projects, combined with a recently announced power project tied to data center demand, supports sustainable dividend growth of 4% to 5% annually and reinforces its $210 price target under a long-term Brent oil price assumption of $70 per barrel.

You May Also Be Interested In

• Intel mulls partnership for Ohio chip fab, SK Hynix among candidates - report
• Chevron shuts production at Gulf of Mexico facility due to storm
• GE Aerospace and Magellan Aerospace Sign Memorandum of Understanding for F414 Sustainment