A Mizuho Financial analyst recently reiterated a "buy" rating on Chevron(NYSE: CVX) and increased the price target from $195 to $200.
The move follows from a Piper Sandler analyst recently reiterating an "overweight" rating on the stock with a $180 price target. The stock currently trades at just under $155, so both price targets suggest substantial upside potential. For example, the Mizuho target implies a 29% upside over the next 12 months or so. When you add in the 4.2% dividend yield, the potential return by this time next year could be 33.5%.
The Mizuho upgrade comes with a positive view of Chevron's reserves and factors in the successful acquisition of Hess(NYSE: HES) in a base-case scenario.
As fellow Motley Fool contributor Matt DiLallo previously outlined, there's uncertainty around the Hess acquisition due to ExxonMobil(NYSE: XOM) acting to preserve the right to determine the value of Hess' 30% stake in the Stabroek offshore oil block in Guyana. It's arguably Hess' most important asset. For reference, ExxonMobil owns 45% of the Stabroek block.
Chevron's move highlights the attractiveness of the sector
Chevron's intended acquisition of Hess highlights the trend of oil majors (ExxonMobil is due to complete its $59.5 billion acquisition of Pioneer Natural Resources shortly) taking advantage of lowly valuations and a relatively high price of oil to acquire assets. A high price of oil means the majors have the cash flow to support deal-making at attractive prices.
It's also a sign of long-term confidence in the industry, and investors may be unnecessarily shying away from buying Chevron stock due to the uncertainty around the Hess situation. That could create a buying opportunity in the stock. Trading on a forward price-to-earnings multiple of around 12.3 times earnings and yielding 4.2%, it's hard to argue that Chevron isn't a good value.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Pioneer Natural Resources. The Motley Fool has a disclosure policy.
