By Senad Karaahmetovic
HSBC analyst Gordon Gray upgraded shares of Chevron (NYSE:CVX) to Buy from Hold, following a strong pullback in stock price.
The analyst took note of a correction in the integrated oil sector recently, which was driven by “the 10% retreat in Brent prices from over USD120/b to little above USD100/b on rising concerns on the effect of the global slowdown on the outlook for oil demand.”
A new price target on Chevron shares is $167, down from the prior $183. At the sector level, the analyst says free cash yields “remain excellent.”
“Chevron’s stock has been one of the worst performers in the group in the past month, reversing some of its previous outperformance. This has brought valuation back to levels which we think justify an upgrade from Hold to Buy, and our revised target price now implies upside of 21%,” Gray told clients in a note.
The analyst reminded investors that Chevron has “the lowest gearing in the sector and a clear line of sight on buybacks,” with a potential for the oil giant to increase the buyback guidance again.
Chevron shares are down 20% since the June peak.