Chevron's Pullback May Be a Buying Opportunity—Even If the War Ends

Key Points

• Chevron has pulled back 12% from recent highs, creating a more attractive entry after a strong oil-driven rally.
• Oil remains elevated and above $100 a barrel, which should continue to support earnings even as broader equity markets normalize.
• Strong analyst support backs this up, with recent price targets reaching $235.

Shares of energy giant Chevron Corporation NYSE: CVX are currently trading around $186, down over 10% from the all-time highs reached at the height of the recent Middle East tensions at the end of March. While that pullback might suggest the best of the move is behind it, the reality is far more nuanced.

The stock is still holding onto a significant portion of its gains from earlier in the year, and, more importantly, the underlying drivers of those gains haven’t really changed.

It makes for an interesting setup. The market appears to be acting as if everything is back to normal, where you’d typically expect geopolitical tensions to ease and oil prices to follow. Off the back of that assumption, you’d be forgiven for thinking that now is not the time to be buying Chevron.

However, there are several reasons to think the company’s best days are ahead of it—let’s jump in and take a look at some of them.

Oil Is Still Doing the Heavy Lifting

The key thesis is simple. Chevron’s performance isn’t tied to geopolitical headlines; it’s tied to the price of oil. Right now, crude oil futures are still trading above $100 per barrel, around the same levels they were at during the initial shock of the crisis. That matters far more than the fact that equity markets already seem to be looking beyond the conflict as a whole.

While the benchmark indices have moved back toward all-time highs and risk appetite has returned, oil prices have remained elevated, which directly impacts Chevron’s earnings. In other words, even if equities are acting as if the whole thing never happened, the price of oil clearly isn’t. And that’s what’s ultimately going to impact the business's revenues and profits.

What strengthens that case further is how well aligned Chevron’s underlying business actually is right now. Yes, the company’s upstream-heavy model means it directly benefits from elevated oil prices, but it’s not just a short-term trade on commodities. Several long-term growth drivers are beginning to align, including increased production across key basins, improved operational efficiency and cost discipline.

Chevron is also generating strong and stable cash flow, supported by a diversified asset base and a balance sheet that allows it to keep investing while still paying a decent dividend to shareholders. That combination matters, especially in a volatile macro environment, and means the company is not reliant on perfect conditions to perform. In other words, even if oil prices were to soften from current levels, Chevron is still well-positioned to generate meaningful free cash flow.

Analyst Support Is Solid

That view is increasingly being reflected in analyst commentary, with recent updates landing firmly in the bullish camp. The team at Scotiabank raised its price target, while BNP Paribas upgraded the stock from Neutral to Outperform.

Those moves echoed those of RBC, which reiterated its outperform rating the other week, itself built on bullish updates from Wells Fargo, Tudor Pickering, and Citigroup earlier this month.

Some of these refreshed price targets range as high as $235, implying nearly 30% in potential upside from current levels. More importantly, they reflect a broad-based view across Wall Street that Chevron is still undervalued relative to both near-term and longer-term earnings potential.

The company’s own outlook supports that view. Chevron is targeting meaningful free cash flow growth over the next few years, driven by large-scale projects coming online and continued cost efficiencies across its operations. This includes production growth from key regions such as the Permian Basin and major international developments, all of which are expected to drive a step-change in earnings power in the coming years.

Earnings Should Reinforce the Case

With the company’s next earnings due on May 1, the next catalyst is already in sight and fast approaching. Given the strength in oil prices over the past quarter, expectations will be high for Chevron to deliver strong results. If the company meets, or even exceeds, those expectations, it would provide further support for the bullish case and should help drive the next leg higher in the stock.

Considering the stock is back trading at the same price it was more than a week before the conflict erupted, while oil is trading at the same level it was when the conflict was escalating, the mismatched opportunity becomes clear.

That also means investors getting involved around these levels can do so right as the recent pullback tires itself out, which it looks to be doing this week. Having previously traded at extremely overbought levels, the recent correction could actually be a blessing in disguise for those looking to open or add to a position ahead of next week’s report.