On Thursday, Chevron Corporation (NYSE:CVX) experienced a price target reduction from $188.00 to $180.00, while its stock rating remained Overweight. The adjustment reflects the potential impact of the ongoing dispute between Exxon Mobil (NYSE:XOM) and Chevron on their long-term resource positioning and growth prospects.
The analyst from Piper Sandler provided insights into the current situation, indicating that the outcome of the dispute could significantly influence the companies' relative standings in the industry. If Chevron successfully completes the acquisition of Hess Corporation (NYSE:HES), its long-term upstream portfolio is expected to be comparable to Exxon's, with both companies having visible growth volumes equating to nearly half of their current production.
Conversely, if Chevron is compelled to abandon the Hess transaction and Exxon secures the Guyanese resource, Exxon is poised to distinguish itself from its peers. This would include Chevron, TotalEnergies (EPA:TTEF) (TTE), Shell (LON:SHEL), and BP (NYSE:BP), by achieving a portfolio depth and quality that represents 56% of its current production.
Such an outcome would grant Exxon a unique position to maintain sustained growth, potentially warranting a higher premium compared to its competitors. In this scenario, Chevron might struggle to find clear alternatives to bridge the gap.
The revised price target is based on a balanced approach, considering a 50% weighting between a free cash flow (FCF) yield target, using a projected fiscal year 2024 annual FCF at a PSC Oil Price of $80 per barrel of Brent crude, and a fiscal year 2024 EBITDA multiple of 6.5 times, which is an increase from the previous 6.0 times.
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