The investment bank thinks shares of Chevron could rise as much as 21 percent based on its 12-month price target of $135. The stock popped $1.65, or 1.5 percent, to $113.61 on Friday.
Oil prices plunged more than 40 percent from peak to trough in the final quarter of 2018. UBS says the volatility shows the value of a "conservative" and "sustaining business and financial model" embodied by Chevron.
Despite a 12 percent drop in Chevron's stock price during the oil price pullback, "we believe that that the intrinsic value of the shares is materially unaffected; that the financial and operating model of Chevron is explicitly constructed to cope with this type of volatility; and that absent a material and structural change in the oil market (which we don't believe is the case) the share price weakness offers an interesting entry point," UBS analyst Jon Rigby wrote in a research note on Friday.
UBS highlights Chevron's ability to fund both capital expenditures and dividend payments with Brent crude futures at $50 a barrel — about $12 below the current price. The bank says capital expenditures remain "generous" and Chevron's debt relative to equity is low compared to peers, giving the company the ability to take advantage of opportunities as they arise.
Chevron's asset portfolio is also "enviable," in the bank's view. The start-up of liquefied natural gas projects will help the company generate cash, while it's "industry-leading" position in the Permian basin, the largest U.S. shale oil field, reduces risks. That gives Chevron time to consider investments in capital-intensive fuel refining facilities and offshore oil and gas projects.