No change to Neutral rating following 2Q 2007 results - Goldman Sachs - July 27, 2007
What's changed
Chevron reported adjusted 2Q 2007 EPS of $2.27, which was essentially in-line with the $2.30 First Call consensus estimate and our $2.35 projection. E&P earnings were slightly ahead of our expectation, US R&M in line, and international R&M slightly below though it is a very difficult segment to forecast on a quarterly basis. Reported E&P production growth in 2Q (including OSA volumes) was -2.1%, slightly below what we expected following Chevron's interim update earlier this month. Our full-year 2007E EPS estimate has been updated to $8.38 ($8.45 before) to reflect 2Q results. We made no other changes to our EPS forecasts.
Implications
There is no change to our fundamental outlook for Chevron following 2Q 2007 results. We view favorably the company's E&P project portfolio as detailed in our Top 170 projects report and also believe some of the recent steps to rationalize its R&M operations make sense. Chevron has a very strong balance sheet with which to return additional cash to shareholders. At the current time, we see similar upside to expected target prices for all three of the US-based super-cap oils, including Chevron, ConcooPhillips, and Exxon Mobil (all Neutral rated). Notwithstanding the sharp broad market correction this week, we continue to prefer higher-beta domestic integrated oil and refining companies given our bullish crude oil and refining margin outlook. Relative to years past where we favored either Exxon or Conoco over Chevron, we now see it as a much closer call.
Valuation
Chevron is trading right around our $85 unchanged price target. Our target price for Exxon Mobil is $83 and for Conoco is $80. All our 12-month target prices are based on asset value, P/E and cash flow valuation analyses.
Key risks
Key risk to our price targets is a sharp decline in the broad market indices like the S&P 500 and a sustained fall in commodity prices. |
