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Chevron Eyes Strong Future Amid Acquisition Challenges

Chevron (NYSE: CVX) is set for a turnaround as its stock struggles, but acquisition of Hess could boost odds of growth. Shareholders might soon see a spike in returns driven by free cash flow growth from the deal's successful closure.

Date: 
AI Rating:   6
Performance Relative to Peers
Chevron's stock price has been stagnant for three years, contrasting significantly with the performances of its peers, as other S&P 500 energy stocks have gained more than 20% during the same period. Its main competitor, ExxonMobil, has even seen a nearly 40% jump in its stock price.

Despite this, the sentiment towards Chevron is shifting, with an optimistic prediction that the underperformance period is ending. A key component fueling this optimism is the upcoming acquisition of Hess (NYSE: HES), a $53 billion all-stock deal finalized in late 2023. While the acquisition has faced delays due to issues surrounding a change-of-control clause potentially triggered by ExxonMobil’s joint development agreement in Guyana, many analysts believe Chevron is likely to prevail in arbitration, which is crucial for the completion of the acquisition.

Free Cash Flow
Another positive aspect highlighted in this report is the potential increase in free cash flow. If the acquisition occurs successfully, Chevron stands to more than double its free cash flow by 2027. This anticipated growth is expected to be driven by the combined strength of Chevron and Hess's operations, particularly in the Bakken region and the Gulf of Mexico. Such growth in free cash flow is a favorable indicator, as it can significantly enhance the company's ability to invest in opportunities, reduce debt, and potentially increase capital returns to shareholders through dividends or share buybacks.

Thus, while Chevron’s stock performance has been lackluster, the company’s strategic moves and the potential for increased free cash flow might provide a catalyst for stock price growth in the near future.
Stocks:  CVX HES XOM