Iran Sanctions Would Push Chevron Corporation (CVX) Stock Higher
Oil investors are watching Washington closely after President Donald Trump said he will be making an announcement about the Iran nuclear deal on Tuesday afternoon. Analysts say Chevron Corp. (NYSE: CVX) is particularly exposed to fluctuations in oil prices, and potential sanctions on one of the largest global oil producers could have a major impact on Chevron's bottom line.
West Texas Intermediate crude oil prices edged above $70 per barrel on Monday before pulling back to just under $70 Tuesday morning ahead of Trump's announcement. Iran currently produces about 3.8 million barrels of crude oil per day. If Trump chooses to reimpose previous U.S. sanctions on Iran, the global oil market could lose nearly 1 percent of its production, sending oil prices higher.
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Chevron stock has rallied more than 17 percent in the past year, outpacing the company's rival Exxon Mobil Corp. ( XOM), which is down 6.3 percent. One of the biggest reasons for Chevron's rally has been rising oil prices. Analysts say Chevron's fate is more closely tied to oil prices than is the case for its major oil company peers.
"With CVX one of the most leveraged of the major oils to changes in oil prices, we view the balance of risk as favorable, albeit the recent recovery has recaptured half of the loss in value since the share price dislocation that took place after [Chevron's fourth-quarter earnings report]," Bank of America analyst Doug Leggate says.
Leggate says rising oil prices helped put Chevron in a position to potentially restart its share buyback program in the second half of the year so that its 3.6 percent dividend can continue to grow.
"CVX has been a go-to name in an oil recovery, given superior oil leverage versus oil major peers," Leggate says.
Morningstar analyst Allen Good says Chevron's free cash flow, which beat analyst expectations in the first quarter, should continue rising in coming years as capital spending declines.
"We expect cash flow to rise during the next five years thanks to improving oil prices, cost-cutting and increased production," Good says.
Bank of America has a "buy" rating and $138 price target for Chevron. Morningstar has a "fairly valued" rating and $121 fair value estimate for CVX stock.
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President Trump is expected to make his Iran deal announcement at 2 p.m. EST on Tuesday.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.
