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.
This energy giant finally has been removed from the penalty box at Goldman Sachs, which recently upgraded the shares to Buy. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
In the report on the long-awaited upgrade to Buy, the analysts noted that Exxon has meaningfully cut its capital spending outlook for next year to a range of $17 billion to $19 billion, compared with an earlier estimate of between $30 billion and $35 billion. Its guidance for 2022 to 2025 is a range of $20 billion to $25 billion.
Exxon expects to exceed its initial guidance of a 15% reduction in cash operating expenses in 2020, due in part to a global workforce reduction of the same percentage point magnitude by the end of 2021.
The company pays investors a 7.96% dividend, which probably will continue to be defended. Goldman Sachs has a $52 price target, well above the $46.66 consensus target. Exxon Mobil stock closed at $43.70 on Wednesday.
This is a solid way for more conservative accounts to play the energy sector, and the stock resides in the U.S. Conviction list stock. Marathon Petroleum Corp. (NYSE: MPC) is one of the largest independent petroleum refining and marketing companies in the United States.
Until just recently, the company operated approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.
In August, the company announced it would sell Speedway to 7-11 in an all-cash deal valued at $21 billion, or $16.5 billion after-tax. The sale transforms the company’s balance sheet and creates options to revisit the corporate structure of MPLX. Many on Wall Street feel that with Speedway removed, the dislocation in refining value becomes even more transparent as the company trades much cheaper than its industry peers do.
The analysts have said this about the Speedway sale:
The company has indicated that it will significantly strengthen its balance sheet with the cash and return excess capital to shareholders in the form of buybacks. While Exxon trades at a valuation premium to its sum-of-the-parts, we continue to highlight that Marathon Petroleum trades at a discount to its sum-of-the-parts valuation.
Shareholders receive a 5.57% dividend. The $49 Goldman Sachs price target compares with the $46.27 consensus target. Marathon Petroleum stock was last seen trading at $41.65.
This extremely diversified energy company has a long and successful operating history. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership, Phillips 66 Partners.
The company is able to benefit from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that aren’t ideal master limited partnership assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.
The analysts said this about the company recently, regarding spending going forward:
On December 14, Phillips 66 hosted its annual sell-side event virtually. Prior to the event, the company released 2021 capital spending guidance of $1.7 billion versus our numbers at $1.9 billion and 2020 levels near $2.9 billion with the difference versus our estimate being entirely at Midstream, reinforcing capital discipline.
Investors receive a 5.35% dividend. Goldman Sachs has set a $78 price target. The consensus target is $74.06, and Phillips 66 stock closed most recently at $67.29.
While oil has had a sparkling run off the lows back in the spring, West Texas Intermediate closed Wednesday at $47.84 a barrel. Many feel that any sustained reopening of the economy and a return to normal could easily spike the price 50% or more.
These stocks are solid ways for investors to play any upswing in oil and an improving 2021 economy. Plus, with two integrated majors and two high-volume large-cap refiners, all are stellar stocks for this looking for a degree of safety and income.
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