If any sector took a beating in 2020, it was energy. Many of the top companies in the sector were forced to cut capital expenditures, in some cases lowering or eliminating dividends, and generally hunker down until there was an improvement in demand. One huge positive for the sector is the release of COVID-19 vaccines that have been approved and are being distributed to the public at a rapid pace
The energy team at Goldman Sachs has been super positive on energy since last fall, and this week they once again raised the firm’s long-term oil price forecasts for 2021 and 2022. They also noted that fundamentals for this year and next appear skewed to a faster pace than they originally had in their base case for energy pricing. They also have pointed out in the past that a successful vaccine like those being rolled out would greatly help the travel industry, among others.
In a new report, they noted this about the prospects for 2021 and 2022 and the mega-cap industry leaders:
Following the report by Damien Courvalin and our commodities research colleagues we incorporate a higher oil price outlook for Brent from $61 per barrel to $69 per barrel in 2021 and $65 per barrel to $70 per barrel in 2022. We recognize these forecasts are well above consensus and therefore value the equities closer to our long term price forecast of $60 per barrel Brent. Overall, despite the sharp rally in the XLE energy ETF year-to-date (+26% vs. the S&P 500 +3%), we still see further upside ahead as oil prices improve, companies hold the line on capital spending discipline, and consensus revisions for earnings march higher for the Energy sector.
The analysts are very positive on six companies, two of which are in Canada. Here we focus on the major U.S. integrated leaders as they look like the smart place for investors to be and all pay outstanding dividends. 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.
The company gave some solid 2021 guidance in December, and the analysts are even more positive now. The research report said this:
We now see 11% total return to our revised price target for CVX. While Chevron has faced a number of asset-level challenges recently, we continue to see strong free-cash-flow generation potential and after underperformance tear-to-date, see attractive risk/reward at current levels. We have a positive view on (1) the company’s balance sheet strength and commitment to capital discipline, (2) management’s balanced approach to the energy transition with a focus on reducing carbon intensity and increasing company returns, and (3) attractive leverage to a commodity price recovery.
Shareholders receive a hefty 5.18% dividend, which the analysts feel comfortable will remain at current levels. The Goldman Sachs price target on the shares is $104, which is higher than the Wall Street consensus target of $101.38. The final Chevron stock trade on Tuesday was reported at $99.63 a share.