Chevron Stock Downgraded: Goldman Sachs – Here’s Why!

Chevron has been the popular choice of investment for investors looking to gain exposure to the oil and gas sector in the recent years.

This is primarily due to the company’s stronger and healthier balance sheet compared to other oil majors.

As such, Wall Street has given it a high rating. They believe in the company’s ability to continue paying out its fat dividend yield of 5%. That’s even during the market recession caused by the coronavirus pandemic, that hit the oil and gas industry especially hard.

Source: Reuters / Buffett ramps up oil bets with $4 billion Chevron stake

Warren Buffett showed his confidence in Chevron by building up his multi-billion dollars stake in the company last year.

Goldman Sachs Downgraded Chevron Stock

Source: Barrons / Goldman Sachs Downgraded Chevron Stock.

Now, Goldman Sachs has turned around and downgraded the company from Buy to Neutral.

That’s because they think that Chevron is now relatively more expensive than other oil majors like Exxon Mobil, ConocoPhillips, BP, Shell and Total.

Chevron Valuation vs Other Oil Majors

Chevron Stock Price Chart YTD

Source: Yahoo Finance / Chevron Corporation Share Price Chart YTD

Chevron’s shares have gained 23% this year with the recovering oil prices. And Goldman Sachs’ analysts expect oil prices to remain elevated in the near term.

Hence, they suggested investors to take on a slightly more risky play by investing in its competitors. For example, they estimate that Exxon Mobil has 8% more upside. Whereas analysts estimate that European oil majors have 36% more upside.

Oil Majors P/E and Price/Free Cash Flow

Source: Data adapted from GuruFocus, Nasdaq and Stockrow / Computed by Carepital

Goldman Sachs does not view Chevron as being overvalued currently, both on an absolute and comparative basis looking at its historical figures. However, analysts think that the company is relatively more expensive compared to its peers on a price-to-earnings and price-to-free-cash-flow basis. See from the figures compiled in the table above.


Hence, they have downgraded the company from Buy to Neutral.

Well, definitely the market has priced in the fact that Chevron has a stronger balance sheet. Thus, the company deserves to trade at a premium compared to its peers.

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