J.P. Morgan downgraded Chevron stock. Should I sell it?

Chevron Corporation (NYSE: CVX) shares have advanced more than  5% in the last five days and closed the week above $100. Chevron continues to improve its position in the market, but J.P. Morgan downgraded CVX shares recently and assigned a neutral rating.

Fundamental analysis: Chevron will invest more than $10 billion in lower-carbon energy businesses

Chevron continues to improve its position in the market, and if you are looking for a solid return potential, shares of this company can be a good choice for long-term investors. The company reported better than expected second-quarter results; total revenue has increased by 178.7% Y/Y to $37.6 billion, which was more than expected, while the GAAP EPS was $1.60 (beats by $0.07).

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The momentum the company achieved during the second quarter reflects improved market conditions, combined with transformation benefits and merger synergies. Chevron reported that it would continue with share repurchases in the upcoming quarters at an expected rate of $2-3 billion per year.

The Organization of the Petroleum Exporting Countries announced that the oil demand should increase in 2022 to levels seen before the pandemic, but the International Energy Agency (IEA) warned that the fast-spreading Delta variant of the coronavirus is cutting into demand for oil as economic growth stalls. The IEA reported that the market could become oversupplied in the upcoming quarters, which represents a threat to oil prices.

J.P. Morgan downgraded CVX shares recently and assigned a neutral rating as Chevron’s higher transition spending plan does not appear to have offsets elsewhere in the portfolio. J.P. Morgan lowered its price target to $111 from $128, which is still above the current share price.

Chevron will invest more than $10 billion in lower-carbon energy businesses by 2028, and the company plans to increase renewable natural gas production to 40K MMBtu/day by 2030. Chevron also expects to have increased hydrogen production to 150K metric tons/year, renewable fuels production to 100K bbl/day, and carbon capture and offsets to 25M metric tons/year by 2030.

“We’ve got a track record of disciplined capital allocation in our traditional business, in mergers and acquisitions, and we intend to apply that in our new energies business, as well. One of the things we’ve chosen not to go into is wind and solar, and we would rather return money to shareholders via dividends than using it to invest in wind and solar power projects,” said CEO Michael Wirth.

Chevron’s balance sheet remains stable, the current dividend yield is above 5%, and with a market capitalization of $193 billion, shares of this company are not expensive.

Technical analysis: $90 represents a strong support level

Chevron shares have advanced almost 4% since the beginning of September 2021, and the current share price stands at $100.60. Chevron shares remain in a buy zone; still, if the price falls below the $90 support level, it would be a firm “sell” signal and probably a trend reversal sign.

Summary

Chevron has proven its stability during the first half of the 2021 fiscal year, but despite this, James Phil Gresh, an analyst from J.P. Morgan, downgraded Chevron and assigned a neutral rating. Chevron reported that it would continue with share repurchases in the upcoming quarters and announced plans to invest more than $10 billion in lower-carbon energy businesses by 2028.

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