Chevron (CVX 0.96%) stock has gone nowhere over the past three years. It's a real headscratcher, considering the performance of other energy stocks. The average one in the S&P 500 is up more than 20% in the period, while shares of chief rival ExxonMobil (XOM 1.63%) surged almost 40%.
I believe Chevron's days of underperformance are ending. I predict the stock will soar over the next two years. Here's one factor fueling that view.
NYSE: CVX
Key Data Points
One issue weighing down Chevron's stock in recent years has been the uncertainty surrounding its pending acquisition of Hess (HES +0.00%). The company agreed to buy the fellow oil stock in late 2023 in an all-stock deal valued at $53 billion. It made that move a few weeks after Exxon agreed to buy Pioneer Natural Resources in a $59.5 billion deal.
While Exxon closed its megadeal for Pioneer last May, Chevron has yet to complete its purchase of Hess. It has Exxon to blame. The fellow oil giant believes Chevron's purchase of Hess triggered a change-of-control clause related to its joint development agreement in Guyana. As a result, the companies are heading to an arbitration hearing later this year.
I predict that Chevron will win its case. That's because its acquisition of Hess is about much more than its stake in the Exxon-led partnership in Guyana. Buying Hess would also expand the company's U.S. onshore position by adding the Bakken to its portfolio. And it would enhance its existing operations in the Gulf of Mexico (also known in the U.S. as the Gulf of America) and Southeast Asia. It's really the perfect strategic fit for Chevron. Chevron is so confident it will close the deal that it recently bought nearly 5% of Hess' stock on the open market.
Closing the Hess deal would position Chevron to more than double its free cash flow by 2027 as it benefits from the growth of its existing operations and Hess' growing free cash flow. That surging free cash flow should help give its stock the fuel to soar.
