Morgan Stanley Upgrades Chevron to Overweight, Sets $174 Price Target After Hess Acquisition

Chevron's stock was little affected in trading despite Morgan Stanley resuming coverage with an Overweight rating and $174 price target. The Hess acquisition removes a key overhang and strengthens Chevron's business, enhancing growth.

Chevron's (NYSE:CVX) stock remained largely unaffected in Monday's trading, despite Morgan Stanley resuming coverage with an Overweight rating and a $174 price target. The Hess acquisition, which closed in July, has been hailed as a strategic move that removes a key overhang and strengthens Chevron's business model.

The acquisition of Hess, a key strategic move, is expected to be 3.5% accretive to 2026 free cash flow per share, rising to 8% later in the decade [1]. The deal is anticipated to boost the 2025-2030 cash flow compound annual growth rate from 3% to 5% and free cash flow from 6% to 8% [4].

Chevron's recent financial performance has been robust. The company reported above-consensus second-quarter earnings of $1.77 per share and cash flow of $4.81 per share, supported by strong downstream earnings and solid upstream operational performance [2]. Total production reached nearly 3.4 million barrels of oil equivalent per day, with Permian volumes hitting the company's multi-year target of 1 million barrels of oil equivalent per day [2].

The Hess acquisition, along with Chevron's cost-cutting plans and its Tengizchevroil joint venture, is anticipated to help reduce the gap in stock growth between Chevron and Exxon Mobil (NYSE:XOM) for the next two to three years [3]. Additionally, exposure to rising production in Guyana through the Hess acquisition will play a crucial role in addressing Chevron's organic growth potential post-2026, extending and enhancing the company's growth outlook for the years ahead [2].

While Chevron's long-term organic growth remains below peers, the company's "leading rate" of free cash flow change into 2026 is balanced by the acquisition and other strategic initiatives [1]. Morgan Stanley forecasts a 2026 free cash flow yield of 8% at $60 WTI, compared to 6% for Exxon Mobil and 7% for ConocoPhillips (NYSE:COP) [2].

References:
[1] https://finance.yahoo.com/news/hes-acquisition-removes-key-overhang-151415834.html
[2] https://seekingalpha.com/news/4477814-chevron-resumed-at-overweight-by-morgan-stanley-as-hess-acquisition-removes-key-overhang
[3] https://www.ainvest.com/news/morgan-stanley-upgrades-chevron-overweight-sets-174-price-target-hess-acquisition-2508/
[4] https://finance.yahoo.com/news/chevron-apos-hess-acquisition-spur-142108179.html