2016 was a total reversal of fortune for the big oil companies. While some of the second- and third-tier oil players saw massive gains, there were rather impressive gains seen in shares of Chevron Corp. (NYSE: CVX) and in Exxon Mobil Corp. (NYSE: XOM) when you consider that they are already Dow stocks. Now we have Exxon CEO Rex Tillerson slated to be Donald Trump’s Secretary of State, which is very pro-oil when you consider the other administration appoints around energy.
24/7 Wall St. has evaluated a bull/bear case for each Dow stock in 2017. Some Dow stocks may have seen their shares rally enough in late 2016 that they ate into the would-be gains that should have been expected in 2017. Still, there is mixed upside in many Dow components and we all know that there are great dividends ahead. Both Chevron and Exxon are in the 2017 Dogs of the Dow, outyielding Treasuries handily.
The Dow Jones Industrial Average closed out the year 2016 at 19,762.60, and while that was short of the 20,000 mark, it was still a gain of 13.4% from the 17,425.03 close on the last trading day of 2015. We do still have a case that can be made for up to Dow 22,000 late in 2017.
Undoubtedly the Dow has been pushed to these highs as the result of the Trump rally. Some definitive characteristics of the rally have been a strong performance by the financial sector, as well as a strong push from energy stocks, with oil back above $50 a barrel. A strong performance from the energy sector going forward as oil prices are increasing could further drive the Dow to even higher levels.
So, here is what may be in store for 2017 in the Dow’s oil and gas giants.
Chevron rose 36% in 2016 and ended the year at $117.70. Its current consensus analyst price target of $119.65 implies limited upside, if the analysts are correct, but that target price has risen handily of late. It was a consensus $115.59 target at the start of December and was closer to a $111 target at the start of October.
Chevron currently has close to a 3.7% yield. It’s worth pointing out that this oil giant handily outyielded Exxon in 2016, not only on the dividend side but also in terms of its annual performance.
In OPEC’s recent meeting in November, the group announced a production cut that saw many analysts lift their targets on major oil stocks. Chevron was a big beneficiary of this, with Citigroup upping its price target to $129 from $110, implying an upside of 14% from the previous closing price of $113.00.
Earlier in the fall, Goldman Sachs issued a call saying that Chevron was more attractive than Exxon after reporting earnings, and the firm assigned a $118 price target for the stock. Goldman Sachs was ultimately right in this call, but since then the firm reiterated its Buy rating for Chevron and Neutral rating for Exxon.
Chevron has a 52-week trading range of $75.33 to $119.00 and a market cap of $222 billion. Its dividend yield is 3.7%.
If we look back a couple years we would see that Chevron and Exxon Mobil had an atrocious stock performance in 2015, being among the worst performing Dow stocks that year. Then came the oil recovery and that all reversed into being among the best Dow stocks. This performance was somewhat unexpected because most analysts were predicting that these companies would have recovered through opportunistic acquisitions and M&A, as opposed to rising oil prices.