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Why Chevron Stock Jumped Almost 13% in October

By Matthew DiLallo – Nov 4, 2021 at 6:12PM

Key Points

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Several catalysts fueled a big rally in the big oil stock last month.

What happened

Shares of Chevron (CVX -1.53%) leaped 12.9% in October, according to data provided by S&P Global Market Intelligence. That's a huge move for the big oil stock, adding more than $20 billion to its market cap

Several factors fueled the oil stock's rally last month, including higher oil prices, its third-quarter results, a slew of analyst upgrades, and the unveiling of an ambitious ESG target. 

The silhouette of a person next to an oil well.

Image source: Getty Images.

So what

Oil prices continued to rally in October. Crude prices were up double digits for the month, topping $80 a barrel for the first time since 2014. Those higher oil prices are benefiting Chevron's bottom line, enabling it to generate more cash per barrel produced.  

That was evident during the third quarter. Chevron unveiled those results at the end of October, delivering an earnings gusher. The company produced $6.1 billion of earnings, $8.6 billion of cash flow from operations, and $6.7 billion of free cash flow. That was its highest quarterly earnings since 2013 and a record for free cash flow. The robust free cash enabled Chevron to pay $2.6 billion of dividends, reduce debt by $5.6 billion, and repurchase $625 million of its stock. 

The rally in oil prices this year led several analysts to upgrade their view on Chevron last month. Truist raised its price target from $145 to $150 a share on higher oil prices. Meanwhile, an analyst at Morgan Stanley noted that Chevron appeared poised for more upside since it had underperformed other U.S. rivals. That led the investment bank to keep its overweight rating on the stock and $149 price target. Finally, an analyst at Societe Generale initiated coverage on Chevron with a buy rating and $130 price target. With Chevron's stock currently below $115 a share after last month's rally, these price targets suggest it has lots of room to run. 

Chevron also set new climate goals last month. The company established a new greenhouse gas reduction target for 2028 and adopted an aspirational goal to achieve net-zero emissions from its upstream oil and gas operations by 2050. Chevron aims to achieve these targets by investing in lower-carbon businesses, including carbon capture and storage. 

Now what

Chevron is cashing in on higher crude oil prices. The company delivered its best quarter in years, which helped fuel the rally in its stock. Meanwhile, analysts see more upside ahead as long as oil prices continue cooperating.

However, questions remain about Chevron's long-term outlook. While the company is getting serious about reducing its emissions, it's unclear if lower-carbon oil will be acceptable in a world focused on emissions-free alternatives like renewable energy and green hydrogen. Because of that, Chevron's stock could remain volatile.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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