Citi upgrades Chevron to ‘buy’ on valuation gap, 'superior growth' prospects

Investing.com -- Citi on Tuesday upgraded Chevron Corp (NYSE:CVX) to “buy” from “neutral” on valuation gap with peer, with upside from exploration in Namibia and the resolution of the Hess arbitration in 2025.

Despite a modest recovery in Chevron's stock over the past two months, it has significantly underperformed both ExxonMobil (NYSE:XOM) and the broader S&P 500 this year. Citi noted that Chevron's valuation trades at a historically wide discount to Exxon, which could reach 20% by 2026-2027 due to Chevron's “superior growth” prospects.

Citi noted that investors had been reducing their overall exposure to energy stocks, with selloffs in Chevron amid uncertainty over the Guyana arbitration and timing of the Hess transaction. This has discounted its valuation, making an attractive investment opportunity.

Brokerage bumps price target on stock by $40 to $185 citing longer-term growth potential and the exploration. Namibia drilling campaign could serve as a high-impact catalyst in the near term.

Chevron's $53 billion deal for Hess Corp (NYSE:HES)., which the brokerage views as “value-neutral”, is critical for growth diversification but hinges on a mid-2025 arbitration ruling. While the outcome remains uncertain, Citi argued that Chevron’s lower valuation shields investors from substantial downside risk.

“The ability to close the deal now depends on a mid-year ruling from an arbitration panel, creating a binary event around which confidentiality means it is impossible for investors to get any real certainty. But we argue that the value-discount now protects the downside, positioning investors for significant upside in a win scenario,” analysts at Citi said