(Energy Analytics Institute, 24.Jan.2024) — TD Cowen downgraded Chevron Corporation’s stock to Market Perform based on its view that Permian and TCO could continue to weigh on the stock due to execution concerns.
TD Cowen listed the following key points related to the downgrade:
— Analysts note that CVX has underperformed broader energy on a total return basis annually since 2021 after 6 consecutive years of outperformance. Underperformance could continue for at least another year, given the potential for Permian to miss 4Q23 guide, the market discounting cash uplift from its largest project (TCO FGP) as a result of execution risk and limited cash from HES deal until 2027.
— TD Cowen believes higher Brent oil prices needed to organically cover the dividend from guided $50 to estimated $60 near term, while CVX may need to reduce its buyback pace from 2026.
— TD Cowen is more bearish on oil beyond 2024, which could pressure the stock given its peer-leading EPS sensitivity to oil price.
— Analysts highlight that TCO delays dampen equity affiliate dividends. The project cost is 27% higher and delayed 3 years from initial guidance. As a result, TD Cowen suspects the market will be hesitant to fully capitalize the inflection in TCO distributions until it starts producing mid-2025.
By Ian Silverman. © Energy Analytics Institute (EAI). All Rights Reserved.