If any sector has taken a beating in 2020, it is energy. Many top companies in the sector have been forced to cut capital expenditures, in some cases to lower or eliminate dividends, and generally to hunker down until there is improvement in demand. One huge positive for the sector is that vaccines for COVID-19 have been approved and are now being distributed to the public.
Goldman Sachs has been positive on energy since earlier in the year. In September, the team raised the firm’s long-term oil price forecasts for 2021 and noted that fundamentals for next year appear skewed to a faster pace than they originally had in their base case for energy pricing. They also pointed out that a successful vaccine like the one being rolled out would greatly help the travel industry, among others.
In a new report in which Goldman Sachs upgrades an integrated energy giant, the firm noted this when discussing the prospects for 2021 and the mega-cap industry leaders:
We believe the set up for oil is constructive over the next two years as demand recovers to pre-COVID levels, even as OPEC ramps volumes. We maintain an above-consensus Brent price view of $55/$65 in 2021/2022. Overall, global majors offer an attractive combination of: (a) balance sheet strength, (b) income, (c) leverage to a crude price and energy demand recovery, (d) underweight positioning and (e) substantially lower free cash flow break evens than history, enabling outsized cash generation.
Four stocks are rated Buy at Goldman Sachs and make good sense for growth and income investors looking for steady income and upside potential. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This energy giant is a safer way for investors looking to be positioned in the energy sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG).
Earlier this month, when the company gave some solid 2021 guidance, the analyst noted this:
Chevron provided guidance around capital expenditures through 2025. On a headline basis, the company expects to spend $14 billion in 2021 ($9.7 billion in cash capital expenditures), and $14-$16 billion annually in 2022-2025 relative to Chevron’s prior out year guidance of $19-22 billion, which excluded the Noble transaction. The company remains focused on investments in the Permian, other unconventionals, and the Gulf of Mexico. While Chevron has outperformed the Energy sector this year (+10% versus the XLE YTD), we maintain our Buy rating on the stock, with a forecast Brent breakeven of $51 per barrel on average in 2021-2025 versus our average Brent price forecast over that period of $60 a barrel. We update our estimates inside on a lower capital spending and production outlook.
Shareholders receive a 5.82% dividend, which the analysts feel will remain at current levels. The Goldman Sachs price target for the shares is $98, and the Wall Street consensus target is $101.38. The final Chevron stock trade on Wednesday was reported at $88.69 a share.