Chevron (CVX) is an energy business worth considering. Though the oil and gas sector took a step back in 2020, it has rebounded in recent months, making the likes of CVX more attractive to investors.

The reopening of the economy will heighten the demand for fossil fuels as people travel, go shopping, socialize and get back to living life the way it was meant to be lived. This means CVX has the potential to climb even higher in the weeks and months ahead.

But is CVX worth buying around $108 per share? Is the stock due for a pullback? Below, I attempt to answer these questions.

CVX Merits

CVX has a market cap of over $200 billion, making it one of the world’s largest oil and gas businesses. The stock has inherent appeal as its dividend of 4.63% is quite high. CVX also has a reasonable forward P/E ratio of 22.98. This figure is even more intriguing considering the fact that CVX is priced a mere $5 below its 52-week high of $112.70.

CVX averages production of more than three million oil-equivalent barrels per day every year. Though reduced commodity prices and a drop in demand led CVX to decline last year, suffering a loss of over $5 billion, the company is looking forward to a better 2021. CVX has a strong balance sheet, rising production, and willingness to reduce capital spending while selling assets to remain competitive. So don’t count CVX out just because it had one bad year. As long as commodity prices stay where they are, or rise and demand holds steady, CVX has the potential to be a winner in the year ahead.

If everything goes as CVX’s brass plans, the company’s capital program will provide a return of 100% while expanding free cash flow at a rate of 10% per year up to 2025. CVX executives have stated $3 billion of the aforementioned capital will be invested in the company’s gradual transition toward low carbon sources.

It is worth noting CVX has decreased its greenhouse gas intensity by more than 20% from the level achieved in 2016. If the company’s “high returns, low carbon” mantra plays out as anticipated, the oil and gas giant will create considerable free cash flow that pays the current dividend or even increases it while reducing the company’s debt load.

The Analyst’s Take

Check out the analysts’ take on CVX, and you will find it has an average target price of $102.06. This means the stock is currently priced right around where the analysts expect it to be priced. However, there is a high analyst target price of $114. The lowest analyst target price for the stock is $90.

Of the 27 analysts who have issued recommendations on CVX, eleven consider it a Buy, four consider it a Strong Buy, twelve recommend Holding, and none view it as a Sell.

CVX by the POWR Ratings

CVX has a POWR Rating of D, meaning it is a Sell. However, it is worth noting the stock has C grades in the Quality, Growth, and Stability components of the POWR Ratings. If you are curious about how CVX fares in the rest of the POWR Ratings components such as Momentum, Sentiment, and Value, you can learn more by clicking here.

Of the 95 publicly traded companies in the Energy – Oil & Gas industry, CVX is ranked 72nd. Investors who would like to find top stocks in this industry can do so by clicking here.

Buy, Sell or Hold?

Sell. CVX is an intriguing play as it will clearly benefit from the uptick in travel resulting from the pandemic’s end in the year ahead. However, savvy investors will hesitate to establish a large stake in this stock simply because it is a POWR Ratings dud with an overall rating of D and an industry rank in the bottom third of the 95 publicly traded companies in the Energy – Oil & Gas industry.

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CVX shares were trading at $106.75 per share on Thursday morning, down $1.28 (-1.18%). Year-to-date, CVX has gained 28.19%, versus a 5.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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