Goldman Sachs Raises Oil Price Targets: 3 Mega-Cap Integrated Leaders to Buy Now

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.
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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.

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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.

Chevron

This energy giant is a safer way for investors looking to be positioned in the energy sector. Chevron Corp. (NYSE: CVX | CVX Price Prediction) 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.
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This is another large-cap company with a stock that offers strong value for investors. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids worldwide.
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Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects.

Many Wall Street analysts feel that Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian.

Goldman Sachs is very positive:

We see a 17% total return to our revised price target for ConocoPhillips. We see four key drivers of an attractive view on COP including (1) leverage to an oil price recovery, particularly given the stock’s recent dislocation versus Brent prices, to which it has historically been highly correlated, (2) robust free cash flow generation, representing attractive capital returns potential, (3) asset quality accretion via the recently completed Concho transaction, and (4) attractive valuation following underperformance versus peers. While we continue to get pushback around federal land exposure, we see positive catalyst opportunities via the company’s March guidance update, a potential buyback announcement, and an oil demand recovery.

Investors receive a 3.30% dividend. Goldman Sachs has a $58 price target, and the consensus target is $55.73. ConocoPhillips stock closed at $52.10 a share on Tuesday.
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Exxon Mobil

The energy giant finally has been removed from the penalty box on Wall Street and offers investors an incredible entry point. 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.

The analysts said this about the industry giant:

We see 15% total return to our revised price target for Exxon. Our positive view is predicated on leverage to positive macro tailwinds around higher oil prices and improving refining/chemicals margins, continued progress on cost reductions, as well as a commitment to capital discipline that we believe will drive lower break evens versus recent history. While Exxon has outperformed peers year-to-date, we continue to see potential positive catalysts in a positive consensus revision cycle as well as the company’s upcoming March analyst day..

The company pays investors a 6.32% dividend, which will probably continue to be defended. The $59 Goldman Sachs price target is well above the $46.66 consensus figure. Exxon Mobil stock closed most recently at $55.05.
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All these stocks are solid ways to play a continued upswing in oil and an improving 2021 economy. Plus, with three integrated majors that are all stellar stocks for investors looking for a degree of safety and income and exposure to a sector that still has good upside potential, balanced growth and income investors still have very reasonable entry points.