Chevron: Risks Rise as Oil Prices Fall

Citigroup’s commodity strategists cut their oil price forecast today–and its oil analysts followed suit with energy stocks. Among those taking a hit: Chevron (CVX), which was downgraded to Neutral from Buy.

Reuters

Citigroup analyst Alastair Syme and team explain why they cut Chevron:

In a relative sense Chevron has outperformed the Big Oil peer group in the last three months, a reflection we believe of the resilience of the balance sheet. But as we revise earnings forecasts to reflect lower oil prices, the valuation, both absolute and relative, in our view, now looks to offer little upside, and certainly when balanced against a portfolio that still carries uncertainties around both execution and reinvestment. On the latter we expect Chevron to be a new acquirer of assets in this cycle, looking to diversify the heavy exposure to high-cost LNG in the reinvestment portfolio.

Syme thinks BG (BRGYY), Total (TOT), ConocoPhillips (COP) and BP (BP) make better bets. He explains why:

What works in this environment? We see the best opportunities around companies with strong growth credentials (BG, Total, ConocoPhillips) and those that are quick to align with the needs of shareholders at this point in the cycle (BG, BP, Total and ConocoPhillips) – all Buys.

Shares of Chevron have tumbled 3.8% to $108.34 at 1:50 p.m. today, while BG has fallen 2.6% to $12.91, BP has plunged 5% to $36.22, Total gas plummeted 6.5% to $47.85 and ConocoPhillips is off 4.6% at $65.79.