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Chevron Receives UBS Downgrade, Strictly on Valuation

UBS analysts laud Chevron for its financial performance but the stock has nearly reached their price target.

Chevron  (CVX) - Get Chevron Corporation Report shares eased after UBS downgraded the oil giant’s stock to neutral from buy based strictly on valuation considerations.

Chevron’s stock has soared 71% from its March 23 low, despite plunging oil prices. The S&P 500 has climbed 31% during that period.

UBS analysts, led by Jon Rigby, noted that the surge of Chevron’s stock has put it nearly at their $95 price target. The stock recently traded at $93.20, down 0.18%.

The sharp rise represents “outstanding share price performance in context,” the analysts wrote in a commentary, according to Bloomberg. They noted that other major oil companies have lagged far behind.

While Chevron logged that 71% ascent since March 23, Exxon  (XOM) - Get Exxon Mobil Corporation Report has gained “only” 43% and Royal Dutch Shell  (RDS.B) - Get Royal Dutch Shell Plc Sponsored ADR Class B Report 24%.

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Chevron’s rebound reflects its “leading reputation for capital discipline and the highly resilient, yet flexible financial model that CVX is running,” the analysts wrote.

UBS expects oil will recover to $47.50 per barrel by 2021. WTI U.S. crude traded at $25.26 Tuesday.

Morningstar analyst Allen Good has a similar take on Chevron to his UBS counterparts.

Management’s actions to reduce spending, suspend the company’s share buybacks and dump some of its assets should help keep the dividend safe, he wrote in a commentary last week.

“We view Chevron’s dividend as the safest among integrated oils,” Good said. But, “while Chevron’s dividend safety stands out among peers, it’s largely priced into shares.” The dividend yield stands at 5.5%.

He puts fair value for the stock at $111 and rates Chevron as having a narrow moat.