Despite the rocky drop in oil prices over the past year, Chevron Corp. (NYSE: CVX) still remains a top pick in the integrated oil sector for one key analyst. The company is positioned to generate the highest organic production growth among its peers, and it has the most dramatic cash cycle inflection in the sector.
Jefferies believes that Chevron’s free cash flow generation should improve significantly through 2018 via a combination of lower capital spending, production growth and margin expansion. The firm expects that this major inflection in the cash cycle will allow Chevron to fund its dividend with free cash flow with a Brent oil price as low as $50 per barrel.
Chevron has utilized its balance sheet to navigate the low oil price environment at a time of high capital spending. However, leverage remains very manageable, and Jefferies expects net debt to capitalization to peak at 19% at the end of this year. Even within the context of the current low oil price environment, the company’s liquidity and financial flexibility are robust.
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