WFS---- Key Takeaway. We reiterate our favorable view of Chevron, our price target of $145 and our Outperform rating. On Wednesday, July 10, we hosted Chevron’s CEO, Michael “Mike” Wirth along with Wayne Borduin from Investor Relations and Michael Rubio, Investor Relations-ESG. We came away with reaffirmed bullishness and several clear themes including; Chevron’s investments and operations are substantially de-risked versus the 2014-2016 era (+/-70% of annual capex is short-cycle and offers growth and flexibility); its opportunities and investments in the Permian are well on track to deliver the 900mboed of production by 2023 (i.e., productivity gains should persist); cashflow returns to shareholders should grow via dividends and/or higher share repurchases.
As we have detailed in prior notes and employ within our valuation framework, the capex reinvestment ratio is an important part of stock selection. On this metric, which we recently updated in our report from June 26, 2019, Integrated Oil & Gas: What-If Projections to 2025E Chevron performs very well. Given our expectation that capex will remain near current levels while base production averages 2-4% annually, we expect the capex reinvestment ratio to remain attractive. For those who would like to focus on near-term earnings expectations, we issued our update note CVX: Quarterly Update Adjustments on July 7, 2019.
Permian Remains at the Forefront. As mentioned above, Chevron remains committed to the 900mboed production goal by 2023 (Q1 2019’s average production was 392mboed). This growth is underpinned by its 2.2 million net acreage position (the majority with low/no royalty), a consistent rig count, continuing productivity gains and a favorable cost trend.