Chevron Earnings Depressed Until Current Market Conditions Improve


Goldman Sachs analyst says Sell Exxon, buy Chevron and Conoco ahead of earnings

Goldman analyst Neil Mehta says Buy Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) AND sell Exxon Mobil (NYSE:XOM), ahead upcoming earnings reports.

Mehta said perhaps the most important metric to watch is free cash flow, and expects Chevron and Conoco “could see net debt broadly unchanged at quarter-end, thanks to capital discipline and boosted by asset sales closed during [Q2], while Exxon could see large debt builds.”

Mehta reiterates Buy ratings on both Chevron and Conoco, with respective $112 and $56 price targets, and believes both look well leveraged to an oil recovery, whenever that may be.

Mehta has a Sell rating on Exxon and $42 price target, lowered by $2, seeing the stock as expensive on valuation relative to U.S. majors, with “challenged” free cash flow generation and dividend coverage, and even with the stock’s YTD decline, he is too concerned about the near-term risks to its recovery to recommend it to bargain hunters.

Goldman forecasts Exxon’s debt load will swell to $57B as the company relies on borrowed money to sustain dividend payouts amid negative cash flow.

Exxon said earlier this week that lower oil prices will take a $2.1B-2.5B chunk out of Q2 upstream earnings while weaker refining margins will whack downstream earnings by $700M-900M.