Did Chevron Deserve an Upgrade?

Despite adding $15 billion to the cost of the Gorgon liquefied natural gas project in Australia and facing a slump in energy output, researchers at Dahlman Rose & Co. have upgraded Chevron Corporation (NYSE:CVX) from “Hold” to “Buy” with a price target of $120 per share.

Where’s the Upside Coming From?

A price target of $120 per share represents a 14.1 percent upside on Wednesday’s closing price, and is $1.47 over the stock’s 52-week high of $118.53.

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On Wednesday, Chevron released a statement indicating that the total cost estimate for the Gorgon project, a massive LNG foundation on Barrow Island, has increased from about $37 billion to $52 billion. “The factors contributing to the increased costs and schedule impacts include labor costs and productivity associated with Barrow Island site infrastructure, logistics challenges and weather delays,” Chevron reports in the statement.

Additionally, the strength of the Australian dollar, which is currently trading at AU$0.95 to one U.S. dollar, has impacted the cost of the project. Regardless, Chevron remains positive about Gorgon’s outlook…