has built a strong balance sheet to buffer itself against this year’s volatility in the oil markets, but there may be better buys for investors in European and Canadian oil companies, according to one analyst.
Tudor, Pickering, Holt cut Chevron to Hold from Buy, with a $100 price target, saying there are better risk-reward opportunities to be had.
Shares of Chevron (ticker: CVX) fell 2% on Monday and are down 24% this year compared to the 14% gain in the S&P 500 index. The shares currently trade around $91.48.
Energy has been the worst-performing S&P sector for the last decade, and certainly for this year, falling more than 33%. But it has been the leading gainer for the last month, up 37%. Oil stocks have a lot of ground to make up.
Tudor Pickering analyst Matt Murphy said Chevron’s strong balance sheet and disciplined management have helped it outperform other oil majors by 15% this year and U.S. large-cap producers by 11%.
“That said, as we chart a course for a better crude and broader macro backdrop in 2021 and (potentially) beyond, we see more compelling risk-reward and free cash flow offerings elsewhere,” Murphy said.
Royal Dutch Shell
(RDS.A), down 35%,
(BP), down 42%, and
(SU) are three he mentioned for U.S.-focused investors in exploration and production or for those looking beyond U.S. markets. All three stocks were down more than 1% on Monday.
That said, Chevron is Tudor Pickering’s preferred U.S. integrated stock given the “more attractive” free cash flow to enterprise value offering than
(XOM), Murphy said. Exxon was down 1% on Monday and has fallen 42% this year.
“Beyond the U.S. border we prefer greater leverage to an improving macro backdrop via European integrated names” as well as Suncor in Canada for those who are looking for exposure to smaller oil companies, Murphy said.
Chevron has its annual investor day in March, when it is expected to detail its plans for the uses of free cash flow next year and beyond. “We’ll be watchful for incremental thoughts on the company’s approach,” Murphy said in his note.
Write to Liz Moyer at [email protected]