A Mizuho Financial analyst recently reiterated a "buy" rating on Chevron (CVX +0.93%) 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%.
NYSE: CVX
Key Data Points
The Mizuho upgrade comes with a positive view of Chevron's reserves and factors in the successful acquisition of Hess (HES +0.00%) in a base-case scenario.
As fellow Motley Fool contributor Matt DiLallo previously outlined, there's uncertainty around the Hess acquisition due to ExxonMobil (XOM +0.61%) 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.
