Chevron (CVX) stock caught its second analyst upgrade in as many days Thursday, and investors surely appreciated the good news. After all, shares in the integrated oil and gas giant are lagging the broader market by a wide margin this year.
Tough comparisons against 2022 – a blowout year for profits as oil prices soared amid Russia's invasion of Ukraine – are just one headwind for Chevron. Fears of a recession settling in later this year are keeping a lid on oil prices, and that's also hurting CVX's prospects.
There's more to the bearish case on Chevron, but suffice to say, much of Wall Street isn't head over heels in love with the stock's chances. If you take a look at analysts rankings of all 30 Dow stocks, CVX isn't anywhere near the top.
Two upgrades in two days has certainly improved Chevron stock's position, however. The latest move came Thursday when RBC Capital Markets analyst Biraj Borkhataria lifted his recommendation on CVX stock to Outperform (the equivalent of Buy) from Sector Perform (Hold). The analyst also lifted his price target on CVX stock to $180 from $165.
On Wednesday, J.P. Morgan analyst John Royall upgraded Chevron stock to Neutral (Hold) from Underweight (the equivalent of Sell), while lifting his target price to $170 from $161.
Both analysts cite Chevron's defensive characteristics – notably its fortress-like balance sheet – which is a common theme among CVX bulls.
Chevron stock's high implied return
Of the 26 analysts issuing recommendations on Chevron stock surveyed by S&P Global Market Intelligence, eight say it's a Strong Buy, five have it at Buy and 13 call it a Hold. That works out to a consensus rating of Buy, with moderate conviction.
Meanwhile, the Street's average price target of $186.48 gives CVX stock implied upside of 22% in the next 12 months or so. Add in the dividend yield, and Chevron's implied total return comes to more than 26%.
Chevron stock is off about 15% for the year-to-date on a price basis vs a nearly 10% gain for the S&P 500. The latest analyst upgrades would suggest that CVX is attractively priced at current levels.
Warren Buffett is certainly a big fan. The chairman and CEO of Berkshire Hathaway (BRK.B) has settled on CVX as one of just two investments in the energy sector. (Occidental Petroleum (OXY) is the other bet.)
Although Buffett reduced Berkshire's CVX stake by about 18% last quarter, the oil major remains one of the most important stocks in the Berkshire Hathaway portfolio. At the end of March, Berkshire owned 132.4 million CVX shares worth $20.2 billion at current levels. With ownership of 7% of Chevron's common stock, Berkshire Hathaway is the energy firm's third largest shareholder after Vanguard and BlackRock.
No one on the Street rates CVX at Sell, but it's understandable why so many analysts are sitting on the sidelines at Hold. The latest upgrades – and Buffett's conviction on the name – should at the very least give Chevron bulls some confidence. Perhaps we'll even see something of a floor put under CVX's price in an otherwise disappointing 2023.
