On Tuesday, Citi upgraded Chevron Corp (CVX, Financial) to a “buy” rating. The investment bank noted that the company is trading at a 29% discount to the industry median on a price-to-book value basis and a 16% discount on a price-to-sales basis.
The upgrade follows Chevron’s underperformance compared to ExxonMobil (XOM, Financial), as stock prices in XOM and the broader market have remained relatively stagnant despite a slight improvement in the past two months. Citi analysts pointed out that Chevron is valued at 23% lower than Exxon, a record gap that could widen to 20% by 2026-2027.
Optimism about Chevron’s future is driven by its prospects in Namibia, where high-impact drilling opportunities are expected, along with the anticipated conclusion of the Hess arbitration by mid-2025. Based on these long-term growth prospects, Citi raised its price target for Chevron by $40 to $185. The brokerage also highlighted the uncertainty surrounding Chevron’s $53 billion acquisition of Hess Corp (HES, Financial) presents a binary risk. However, Chevron’s low forward P/E ratio means that downside risk is buffered, making this a solid entry point for potential upside if the arbitration favors Chevron.
While the outcome of the Hess deal remains uncertain, Citi’s upgrade signals confidence in Chevron’s future growth prospects through strategic exploration and diversification.
This article first appeared on GuruFocus.
