What happened
Seemingly unhappy with news of the PDC Energy (PDCE) acquisition, investors sold off shares of Chevron (CVX -0.14%) yesterday, resulting in the stock falling about 1.8%. Today, however, the stock is headed in the opposite direction. Shares of the oil supermajor are powering higher thanks to some favorable coverage from analysts.
As of 11:48 a.m. ET, shares of Chevron have risen 3.2%.
So what
While the decline in Chevron's stock yesterday suggests that investors aren't keen on the idea that the company is ponying up $6.3 billion to acquire all outstanding shares of PDC Energy, analysts seem to like the deal. Devin McDermott, an analyst at Morgan Stanley, hiked the price target on Chevron's stock to $198 from $192 and maintained an equal-weight rating. Like McDermott, Gordon Gray, an analyst at HSBC, has a more favorable opinion on the energy stock. Gray upgraded Chevron's stock to buy from hold and set a $189 price target.
With Chevron's stock closing at a price of $152.44, the price targets of McDermott and Gray imply upsides of 30% and 24%, respectively.
Operating in the Wattenberg Field and Delaware Basin, PDC Energy is an exploration and production company focused on assets located in the United States. Chevron believes that its acquisition of PDC Energy will be accretive to its earnings per share and contribute about $1 billion in free cash flow.
Now what
Although the initial reaction to the PDC Energy acquisition wasn't positive, it seems investors are recognizing the value of the deal today -- especially since it's getting an endorsement of sorts from analysts. With the prospect of more robust free cash flow and with shares trading at a 10.5 times forward earnings, Chevron's stock appears pretty appealing right now. For those who had been sitting on the fence with regard to powering their portfolios with Chevron's stock, today may be the time to act.
