Chevron Corporation’s stock performance has remained stagnant over the past three years, contrasting with the notable gains observed in other energy stocks. The average energy stock in the S&P 500 index has increased by over 20% during this period, while shares of ExxonMobil Corporation saw a surge of nearly 40%.
There is an anticipation that Chevron’s period of underperformance may soon conclude, with expectations that the stock will experience significant growth in the upcoming two years. A notable factor influencing this outlook is a strategic acquisition.
A key issue affecting Chevron’s stock has been uncertainty surrounding its acquisition of Hess Corporation. This purchase was agreed upon in late 2023 as an all-stock transaction valued at $53 billion. This move followed closely after ExxonMobil agreed to a $59.5 billion deal to acquire Pioneer Natural Resources.
While ExxonMobil successfully completed its major acquisition last May, Chevron has not yet finalized its purchase of Hess. The delay is partly attributed to a dispute with ExxonMobil, which argues that Chevron’s acquisition of Hess activated a change-of-control clause related to their joint development agreement in Guyana. This disagreement is set to proceed to arbitration later this year.
It is anticipated that Chevron will prevail in the arbitration case. The rationale is that Chevron’s acquisition of Hess extends beyond the involvement in the joint venture in Guyana. The acquisition is expected to enhance Chevron’s U.S. onshore presence by incorporating the Bakken region into its operations and bolstering its activities in the Gulf of Mexico and Southeast Asia. This acquisition is perceived as a strategic alignment with Chevron’s long-term goals. Chevron’s confidence in the transaction is evidenced by its recent purchase of nearly 5% of Hess’ shares on the open market.
Securing the Hess deal is projected to position Chevron to more than double its free cash flow by 2027, benefiting from both its existing operations and the anticipated increase in Hess’ free cash flow. This rise in free cash flow is projected to propel Chevron’s stock upward.
In addition, there is a call to action for investors to consider potential investment opportunities, as expert analysts have issued “Double Down” recommendations for specific stocks. These recommendations suggest that specific companies are poised for significant performance, prompting investors to seize these opportunities before they potentially miss substantial gains.
