What do the analysts say about Chevron stock?

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Chevron (NYSE:CVX) is a major oil major and valued at $260 billion, ranking CVX 35th on the list of largest public stocks globally. Judging from the collective market capitalisations of the petroleum industry, oil majors certainly don’t look like they belong to a ‘sunset’ sector.

Despite the ongoing ‘transition’ to a green world, hydrocarbon is still worth a lot. Exxon Mobil (NYSE:XOM) is one of the largest companies in the world, commanding a market of nearly $400 billion. Saudi Aramco is valued at more than $2 trillion.

Is Chevron stock overvalued?

While the oil sector saw its fortune crater during the pandemic – due to the sudden cessation of transportation – the post-pandemic recovery re-ignited investor interest in the sector. Warren Buffett made one of his most recent major acquisitions in Occidental Petroleum (NYSE:OXY). And through Berkshire, he also owns an $18 billion stake in Chevron, although the stake is being trimmed down.

Chevron saw its share price triple from the pandemic lows at $60. The onset of the Ukraine War further pushed the share price to new all-time highs (see below).

So confident was the management that in October 2023, Chevron decided to take over another large oil company – Hess Corporation (NYSE: HES). The all-stock acquisition costs $53 billion. Each Hess share will get 1.025 CVX share.  The reasons for the takeover are clear: Stabroek in Guyana and Bakken in the US. In a public statement, Chevron spelled this out simply:

The acquisition of Hess upgrades and diversifies Chevron’s already advantaged portfolio. The Stabroek block in Guyana is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade. Hess’ Bakken assets add another leading U.S. shale position to Chevron’s DJ and Permian basin operations and further strengthens domestic energy security.

What do the analysts say about Chevron stock?

Given the ongoing geopolitical tensions in the Middle East and Eastern Europe, the market was, until December last year, quite bullish on oil. As a result, most analysts are handing out bullish recommendations on Chevron.

According to a forecast aggregator (Financial Times, paywall), out of 25 broker ratings 20 are either ‘Buy’ or ‘Outperform’. Only a handful belong to neutral votes. The median price forecast for Chevron’s share price is $180, a good 28 percent above CVX’s current level of $140. (In comparison, Hess’s median price target is $166)

How high can Chevron stock go?

However, are these bullish predictions warranted?

Since reaching a local high of $90, crude oil prices have tumbled to $70. This is pulling most oil stocks down to their 6-month lows (some even touched 12-month lows). For Chevron, prices have corrected by more than a quarter from its 2023 peak. The key area to watch is $135-140 floor, as that support level was developed over past 18 months.

I suspect this floor will be breached should oil prices break the $65 support.  The world economy is clearly struggling and IEA has predicted thatincreases in global oil demand are set to halve from 2.3 mb/d in 2023 to 1.2 mb/d this year, with the post-Covid recovery all but complete, GDP growth below trend in major economies, and as energy efficiency improvements and electrification of the vehicle fleet curb oil use.

In other words, macro turbulence will hit the energy sector.

Lastly, should we buy Chevron now given the large pullback? In view of the ongoing takeover of Hess, perhaps buying the target is a better way to capitalise on the situation. In the event of the takeover being blocked, Hess’s ownership of the fast-growing assets in Guyana makes it an interesting play on the oil market.

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