Chevron shares got a rating downgrade from Bank of America analysts, on valuation concerns.
Analysts at Bank of America lowered their rating on the oil behemoth’s shares to underperform from neutral, on what they perceive are fully valued at current levels.
Calling his own view as “ counter-consensus”, Leggate argued that a discounted-cash-flow-based valuation suggests that the shares are fairly valued at current levels, assuming a $60 Brent crude base.
The analyst anticipates Chevron’s major growth driver, the Permian Basin, to hurt its cash margins, since U.S. production is leaning towards gas and natural-gas liquids.
Furthermore, Leggate indicated that ever since oil prices crashes in 2015, Chevron has increasingly focused on reducing spending and engaging in share buybacks . The analyst views the share buybacks as a sign of “ underinvestment” that compromises visibility on new projects needed to sustain free cash flow growth and bolster sustained dividend growth.