Chevron Is Moving Higher On Analyst Upgrades

Chevron Is About To Make Another Move Higher 

Chevron (NYSE: CVX) just turned up on one of our favorite screens, a screen for the most upgraded stocks in the market. As we’ve often said, buying a stock because an analyst says so isn’t the best way to invest but if the sentiment among a broad number of analysts is changing in a stock that is a stock we might want to own. The takeaway here is that Chevron is the most upgraded stock for the last 90 days with 24 positive actions and that is saying quite a lot because we’re only listing 23 analysts with current ratings. 

The most recent analyst shoutout comes from UBS which rates the stock a Buy compared to the Marketbeat.com consensus of a weak Buy. UBS maintained its rating but upped the price target to $190 compared to the consensus target of $157. The consensus target is lagging the price action by about 5% as of the first week of April but the UBS upgrade is telling. The consensus price target is up 27% in the last 90 days and 10% in the last 30 days and heading higher by the look of things. In our view, the price target will continue higher until oil price top out which we don’t think has happened yet. 

Why Is Chevron Getting So Many Upgrades? 

There are several reasons Chevron is getting upgraded so much but it all comes down to earnings. The price of oil is trading near record levels and will most likely set another new all-time high before it tops out this cycle. The takeaway is that energy companies, especially integrated producers like Chevron, are expected to make windfall profits. Just look at the expectations for earnings for the S&P 500 Energy Sector, a sector in which Chevron is ranked #2 and accounts for 20% of the net. The Energy Sector is expected to see its earnings grow 245% in Q1 and this estimate is up 8000 basis points from the start of the quarter. The full-year estimates are the same with growth expected in the range of 69% and up 4000 basis points from the start of the quarter. If oil prices go up again these estimates are sure to go up with them. 

Chevron is also a very lightly valued company that pays a very large dividend. The stock is trading about 12X its earnings and pays 3.45% with windfall profits in the picture. In this scenario, we are expecting Chevron to announce share buybacks, dividend increases, and maybe even a special dividend if the cash flow is that good. Looking at Chevron’s dividend history, this outlook is not out of line because it is already an established dividend grower. The bottom line, this dividend is safe and the odds highly favor an increase in capital returns. 

The Technical Outlook: Chevron Forms A Bullish Triangle 

Shares of Chevron have been moving steadily higher since the pandemic bottom and that movement is gaining momentum. The most recent action is a strong updraft that looks like a Bullish Flagpole to us. The pattern is best seen on the weekly charts where the Flagpole is a single candle moving up from $140 to the $165 range where the consolidation is happening. If the market breaks out to the upside as we expect, this market could add another $25 in a matter of days to a few weeks with a chance of adding another $20 to $40 over the following two months or so. If oil prices remain strong and the economic recovery as well, this stock and sector could keep rising until something changes in the fundamentals.