The Ratings Game: Chevron stock is now a relative sell after too much outperformance, analyst says


Shares of Chevron Corp. pulled back Friday after J.P. Morgan analyst Phil Gresh recommended investors sell on a relative basis, given the oil giant’s outsized outperformance in recent weeks.

The stock

slid 2.7% in premarket trading. It had gained in nine of the past 10 sessions, including Thursday’s 2.7% jump to a record close of $170.82.

J.P. Morgan’s Gresh downgraded Chevron to underweight from neutral, saying that while he believes the company is a “high-quality global oil major,” valuation looks increasingly full after the recent rally. He said the stock appears to have “materially” outperformed its oil price beta.

The stock has soared 23.1% over the past month through Thursday, while continuous crude oil futures

have climbed 13.4%, the SPDR Energy Select Sector exchange-traded fund

has gained 10.0% and the S&P 500 index

has lost 3.6%.

FactSet, MarketWatch

“[Chevron] now screens as the most expensive company in our coverage and the most expensive of the global majors,” Gresh wrote in a note to clients. “While some of this could be due to its limited Russia exposure and modest Venezuela exposure, both of which could be positive in this environment, we see the least upside in the stock from here (~2% total return potential, group average ~25%).”

Since Russia started invading Ukraine before the Feb. 24 opening bell, Chevron’s stock has run up 26.0% through Thursday, while crude oil futures have advanced 14.0% and the energy ETF has tacked on 14.5%.

Keep in mind that Gresh’s bearish rating is a relative call, as “underweight” at J.P. Morgan means the analyst expects the stock will underperform the average total return of the stocks in the analyst’s coverage over the next six to 12 months.

Meanwhile, Gresh reiterated his overweight ratings on Exxon Mobil Corp.

and Cenovus Energy Inc.
while keeping neutral ratings on Occidental Petroleum Corp.
Canadian Natural Resources Ltd.

Imperial Oil Ltd.
Montrose Environmental Group Inc.

and Suncor Energy Inc.

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