Citi upgrades Chevron as it trades at a discount to Exxon Mobil

On November 26, 2024, Citi's analyst Alastair Syme upgraded Chevron's stock rating to 'buy' from 'neutral,' citing its undervaluation compared to its rival Exxon Mobil. Syme set a new price target for Chevron shares, increasing it to $185 from the previous target of $145. This change indicates a potential upside of approximately 15.4% based on Monday's closing price. Chevron's stock has increased by just 7.5% year-to-date, which is significantly lower than the S&P 500's 25% rise during the same period and Exxon's impressive 20% gain in 2024. The analyst pointed out that Chevron's stock had lagged behind due to its ongoing arbitration with Exxon Mobil over the ownership of Hess' oil assets located in Guyana. The outcome of this arbitration, set for 2025, is crucial because a ruling in Exxon's favor could prevent Chevron's merger acquisition of Hess from being finalized. Additionally, Syme observed a growing valuation gap between Chevron and Exxon, which is anticipated to reach historically wide levels of around 20% by 2026. Syme's report highlighted not only the current undervaluation of Chevron due to these external pressures but also the potential future benefits of Chevron's upcoming high-impact exploration projects in Namibia and its operations focused on the Tengiz Field in Kazakhstan. These initiatives are expected to bolster growth prospects and mitigate risks associated with the investment in Chevron stock. On the day of the analysts' recommendations, Chevron’s shares experienced a 1% rise in pre-market trading, reflecting an early positive response from investors to the upgraded rating and the promising outlook provided by Syme. In summary, Citi's upgrade of Chevron is based on the attractive entry point for investors and the belief that the upside potential is significant, even with the downside protected by the current market positioning. This analysis comes at a time when the oil and gas industry is experiencing fluctuations, making strategic acquisitions and operational improvements essential for competitiveness.