Oil companies have new friends in the White House and in Congress in 2025. The energy policy is not just going to be focused on energy independence. Energy leadership in the world will also be a big focus. But what does that mean for the price of oil if the markets are already in slight oversupply and with more U.S. drilling capacity being allowed in the years ahead? The reality is that the verdict on energy prices is not the only determining factor for stock picking in the energy patch.
BofA Securities has added Chevron Corporation (NYSE: CVX) to its prized US 1 List, making Chevron BofA’s top oil and gas stock for 2025. This puts Chevron in the “Strategic” realm for investors who look to add single stocks in the hope for greater returns.
The US 1 list is effectively BofA’s list of best investment ideas from its Buy-rated universe. The list is generally managed with a goal of providing superior investment performance over the long-term. And while BofA’s Buy-rated stocks can have the same “Buy” rating for years, each analyst issuing price targets generally has a 12-month timeframe in their outlook. And BofA’s latest report a day before the US 1 List addition was clear — It is our top pick going into 2025.
Chevron has had a Buy rating at BofA since October of 2023. The firm raised its price objective to $180 from $168 a day before the US 1 List addition. That target went from below-consensus to above-consensus, listed as $173.94 on the NASDAQ analyst research price target tracker. Nasdaq also shows the highest analyst price target as $195 and the lowest as $154. Finviz shows a $174.77 consensus price target.
The prior call from BofA was based on an inflection in Chevron’s free cash flow. The BofA team, Jean Ann Salisbury and James Larkin, was effectively almost a pairs trade — long Chevron and “Neutral” Exxon Mobil Corp. (NYSE: XOM) and Occidental Petroleum (NYSE: OXY). The report (with abbreviations converted to words) said:
The crux of this call was that we were/are cautious oil beta and looking for underappreciated cash flow inflection stories. Our view was that from Gulf of Mexico, TengizChevroil, and Chevron Phillips Chemical projects coming online, the next 2-3 years would add $5.5 billion of free cash flow to Chevron, underappreciated by investors in the overhang of Hess uncertainty.
Three drivers are confidence in the Gulf of Mexico, Permian capex likely falling a bit more than expected with a faster production plateau and adding another $2 billion to $3 billion in cost cuts. There are still of course some risks. BofA’s report does maintain that the magnitude and sustainability of price moves in oil/gas prices and refining and chemical margins can materially impact its investment thesis.
The attempted acquisition of Hess Corporation (NYSE: HES) by Chevron has added a material overhang on Chevron’s stock due to the legal dispute and assets targeted in Guyana. BofA believes this overhang will clear one way or another. If the Hess acquisition closes, then it should address multiple market concerns including the quality and longevity of assets as well as better visibility into the future of the company.
A recent takeaway from a corporate dinner also left the shareholder incentives firm. Chevron kept the $17.5 billion share buyback guidance (“until they say differently” per the note). The company is also said to be comfortable taking net debt to 20% to 25% to achieve this (depending on where oil prices head mid-term).
BofA has tempered its oil price forecast through 2026, but the firm still sees Chevron’s free cash flow per share at greater than $19/share by 2027. The firm’s targets recently changed:
- Brent to $65 from $75 and West Texas Intermediate to $61 from $71 in 2025
- Brent to $63 from $72 and West Texas Intermediate to $59 from $67 in 2026
The latest guidance and capex views from Chevron’s Q4 outlook are now available.
For a disclaimer and a warning — Oggonomics always reminds its readers and investors that no single analyst report should ever be the sole basis to buy or sell a stock. That decision to buy or sell, or hold or short sell, is up to each investor and the decision should be made with a financial advisor. And there are of course no assurances that any of the price predictions and the scenarios that back the calls up will actually come to fruition. The Buy rating and price targets mentioned are from outside firms. Oggonomics does not maintain formal ratings or price targets on these companies.
Chevron closed at $157.08 on Monday and Tuesday’s price right after the opening bell was $158.00. Its 52-week trading range is $135.37 to $167.11. With a $282 billion market cap it also has a 4.2% dividend yield.
