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Back in Black: Why Chevron Could Have a Banner 2018

Chevron (CVX) escaped the worst of the energy sector's pain in 2017. Will this be the year that it outperforms the market?

It could be. Toward the end of last year, Barron's became more positive on the energy sector, something that would, no doubt, be a boon to energy stocks of all stripes. And many analysts are now expecting Chevron's strength to continue.

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Bloomberg News

Count BMO analyst Brendan Warn and his team among the believers. Last year Chevron was in "harvesting mode," Warn writes, as its liquefied natural gas mega-projects started producing, which meant that the pre-productive capital it employed halved, from about 50% to 25%. As such, he believes that 2018 will "be a year of delivery" for Chevron, given that its projects are ramping up, and it will benefit from lower corporate taxes and better oil prices.

As a result, Warn believes Chevron has reached "a major cash inflection point," at which point the company will announce buybacks that will boost the stock. He estimates Chevron's post-dividend surplus cash yield to be some 4%, the highest since 2010. No wonder then, that Warn and team boosted their rating on Chevron to Outperform from Market Perform, and raised their target price to $140 from $120.

Chevron's shares have climbed 2% to $131.19 at 10:52 a.m. this morning, outpacing the Energy Select Sector SPDR ETF's (XLE) 1.5% rise to $76.28. While the stock has gained 13% during the past 12 months, lagging the S&P 500's 21% climb, during the same period, its gained 4.8% since the start of 2018, outperforming the S&P 500's 3.1% increase.

If warn is right, expect the gains to continue.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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